Question on war chest and market timing

[NTL]

Actually it isnt accurate to say that when you're holding cash you're losing out on gains/dividend. Take sgx in the last 2 years for example, some stocks did rose a lot but similarly there are many that dropped. Even the blue chips like kepcorp, noble, starhub, property stocks, etc dropped over the 2 years. So why not see it as by being sideline, you avoided on these paper loss. Why are we so sure that we will definitely gain if we are fully vested?

I did a simulation of randomly buying stocks at various dates. If we bought during the crisis 2008-2009 period, the chances of getting positive results now (2015) can be as high as 90%. ie: Even the lousy stocks can make gains. Conversely, if you bought during 2011-2012, the percentage dropped to 20-30%. A conclusion from this exercise is that having a correct timing reduced your chance of making losses, and thus increased your margin of safety.

We can't read the future. What you did is reading the past. True that stay at sideline will avoid those losses, but that is only on hide sight. We won't really know if we will be avoiding losses, or missing out gains for the next 2 yrs. Thus I still prefer a "partly invested - partly cash" position.

You can be right, but I can be right too. In 2 yrs time, we will know.

[NTL]

I definitely do not see any bubble presently in the local stock market. For one, the volumes are way too low. Market participation by the masses is key to forming bubbles. Besides, the prices of most property and O&G stocks has been deflated. My guess is that most of the investable cash of most singaporeans has been placed into the property market. Has the property market absorbed the cash of most would-be stock market players?

From what I know, many Singaporeans are still holding much cash. Many are waiting for the property prices to fall, or the property measures removed, before getting in to buy their properties. These people may not be investing in the stock market.

[ValueMushroom]

Actually it isnt accurate to say that when you're holding cash you're losing out on gains/dividend. Take sgx in the last 2 years for example, some stocks did rose a lot but similarly there are many that dropped. Even the blue chips like kepcorp, noble, starhub, property stocks, etc dropped over the 2 years. So why not see it as by being sideline, you avoided on these paper loss. Why are we so sure that we will definitely gain if we are fully vested?

I did a simulation of randomly buying stocks at various dates. If we bought during the crisis 2008-2009 period, the chances of getting positive results now (2015) can be as high as 90%. ie: Even the lousy stocks can make gains. Conversely, if you bought during 2011-2012, the percentage dropped to 20-30%. A conclusion from this exercise is that having a correct timing reduced your chance of making losses, and thus increased your margin of safety.

This works when you are randomly buying shares and have no specific stocks in mind. The thing about waiting for market to fall drastically before buying is you may have to wait for unknown number of years. Then when the market drop actually happens you may freeze in inaction.

At least for property, every year you are vested you win by X amount, the longer you vested the bigger your margin of safety and profit : ) For property I think it is about the length of time vested, think this is similar to investing in stocks.

[zxiank]

We can't read the future. What you did is reading the past. True that stay at sideline will avoid those losses, but that is only on hide sight. We won't really know if we will be avoiding losses, or missing out gains for the next 2 yrs. Thus I still prefer a "partly invested - partly cash" position.

You can be right, but I can be right too. In 2 yrs time, we will know.

Agree with you on being partly invested. I'll still buy if i can find value stocks. What I'm commenting on we need not feel bad on not fully invested. Holding cash is not that bad from what we see in past history

[zxiank]

This works when you are randomly buying shares and have no specific stocks in mind. The thing about waiting for market to fall drastically before buying is you may have to wait for unknown number of years. Then when the market drop actually happens you may freeze in inaction.

At least for property, every year you are vested you win by X amount, the longer you vested the bigger your margin of safety and profit : ) For property I think it is about the length of time vested, think this is similar to investing in stocks.

Haha yes properties is one of the nice investment type unique to Singapore (and a few other cities).

[AQ.]

I find a lot of skills needed for gambling useful in investing as well. The most relevant is probably the need to manage the risks of a streak of bad runs.

Suppose one plays a truly random game, and gets into a streak of bad run where one loses 10 in a row, how does one size up your capital so that one can relive another day? The ultimate disaster is to get caught in such a streak and end up with too little of capital that one never gets back. Most of the time, people caught up in these situations end up borrowing and doubling down - leading to ultimate catastrophe.

A more quantitative thought is just that after losing 50% of one's capital, one will need 100% returns to end up square.

I think the biggest obstacle behind the adaptation of the mindset is that people tend to treat gambling as luck and investing as intellect (I cannot lose at investing since I am so smart!!!) Also, people tend to gamble too big in investing with too little of capital (which some VB has raised i.e. the importance of the first pot of gold) Perhaps a good way to think abt investing is that it's a casino for many years, so longevity in the markets is prob much more important than the performance in the last/next 5 yrs.

Personally, my philosophy is to simulate the a likely case scenario for my ptf when dirt hits the fan and correlation hits one (i.e. equities fall, corporate bonds spreads widen, USD rallies etc) and make sure the net ptf is still of a size that I feel comfy with so I can continue to play. Else it's time to de-risk.

[Temperament]

I find a lot of skills needed for gambling useful in investing as well. The most relevant is probably the need to manage the risks of a streak of bad runs.

Suppose one plays a truly random game, and gets into a streak of bad run where one loses 10 in a row, how does one size up your capital so that one can relive another day? The ultimate disaster is to get caught in such a streak and end up with too little of capital that one never gets back. Most of the time, people caught up in these situations end up borrowing and doubling down - leading to ultimate catastrophe.

A more quantitative thought is just that after losing 50% of one's capital, one will need 100% returns to end up square.

I think the biggest obstacle behind the adaptation of the mindset is that people tend to treat gambling as luck and investing as intellect (I cannot lose at investing since I am so smart!!!) Also, people tend to gamble too big in investing with too little of capital (which some VB has raised i.e. the importance of the first pot of gold) Perhaps a good way to think abt investing is that it's a casino for many years, so longevity in the markets is prob much more important than the performance in the last/next 5 yrs.

Personally, my philosophy is to stimulate the a likely case scenario for my ptf when dirt hits the fan and correlation hits one (i.e. equities fall, corporate bonds spreads widen, USD rallies etc) and make sure the net ptf is still of a size that I feel comfy with so I can continue to play. Else it's time to de-risk.

[NTL]

At least for property, every year you are vested you win by X amount, the longer you vested the bigger your margin of safety and profit : ) For property I think it is about the length of time vested, think this is similar to investing in stocks.

This is just a general perception. The value of properties can drop and keep dropping too. On short term basis, look at those properties in Sentosa. I won't know if their prices will recover in future or not. In many parts of the world, due to the country or cities' economy, the prices of the properties are on a downhill, never to recover. Singapore had been enjoying 50yrs of prosperity, thus you can see the prices of properties going up on a general trend. The population growth also play a part to this. However, can we guarantee that Singapore will continue to grow in the future? Buying a property can be seen as buying a "share" of the country. Buy only if it is worth buying, ie look at the P/B, dividend, future cashflow potential. Sell when it is fully valued, or when the economy changes.

[NTL]

We can't read the future. What you did is reading the past. True that stay at sideline will avoid those losses, but that is only on hide sight. We won't really know if we will be avoiding losses, or missing out gains for the next 2 yrs. Thus I still prefer a "partly invested - partly cash" position.

You can be right, but I can be right too. In 2 yrs time, we will know.

Agree with you on being partly invested. I'll still buy if i can find value stocks. What I'm commenting on we need not feel bad on not fully invested. Holding cash is not that bad from what we see in past history

Maybe we are barking at the same tree from a different side. Yes, one need not be fully invested, but one should not be fully cash too, which is what we can see in the past history.

[Temperament]

I find a lot of skills needed for gambling useful in investing as well. The most relevant is probably the need to manage the risks of a streak of bad runs.

Suppose one plays a truly random game, and gets into a streak of bad run where one loses 10 in a row, how does one size up your capital so that one can relive another day? The ultimate disaster is to get caught in such a streak and end up with too little of capital that one never gets back. Most of the time, people caught up in these situations end up borrowing and doubling down - leading to ultimate catastrophe.

A more quantitative thought is just that after losing 50% of one's capital, one will need 100% returns to end up square.

I think the biggest obstacle behind the adaptation of the mindset is that people tend to treat gambling as luck and investing as intellect (I cannot lose at investing since I am so smart!!!) Also, people tend to gamble too big in investing with too little of capital (which some VB has raised i.e. the importance of the first pot of gold) Perhaps a good way to think abt investing is that it's a casino for many years, so longevity in the markets is prob much more important than the performance in the last/next 5 yrs.

Personally, my philosophy is to stimulate the a likely case scenario for my ptf when dirt hits the fan and correlation hits one (i.e. equities fall, corporate bonds spreads widen, USD rallies etc) and make sure the net ptf is still of a size that I feel comfy with so I can continue to play. Else it's time to de-risk.

"LONGEVITY, DEEP POCKETS and LADY LUCK - the 3 best things to have in the Stock Markets".

By a > 25-30 years veteran financial author.

i agree. WHY?
Maybe because i know my IQ is very average only. And LADY LUCK is GOD's BLESSINGS if you are a believer or You believe entirely in YOURSELF as you think you can be one of the GURUS like WB, PL, Howard, George, etc.....

i think one of the Great Gurus also wrote something about LADY LUCK and his investing career before you think you believe in YOURSELF only.
i think it is Howard (IIRC). Goggle lol!

NB:
Stock market may not be a CASINO but our life is. Who knows what is going to happen next to his life?
Shalom.