Financial Freedom SG

Timing when to buy or sell a share is essential according to most people and conventional wisdom. If you time it correctly, you will buy at the trough of the market and sell it off at the peak, and in doing so, maximise your returns. But can anyone really do that?

You would have seen lots of advertisements in the papers of people or companies who trumpets to the whole wide world that the people who attended their classes or lectures have made lots of money. Think about it for a while. If they are really so good at investments, why are they lecturing people AND charging a fee? Look at Warren Buffet, if you ask him to talk to people about investment as he did to a class of MBA students (available in Youtube), I am sure that he will be willing to do it without charging people. Why? Because he doesn't need the money, in fact he gave billions to charity.

So when people come and tell you that they have an investment strategy that will make you a lot of money because you can sell and buy at the correct time, ask yourself that question in bold in the previous paragraph. People who tell you that they can buy at the peak and sell at the trough are selling you a crapload of bull.

Timing the market is for the fortune-teller and the charlatans out for a quick buck. They can show you a lot of charts and spreadsheets but the truth is that they cannot guarantee that their graphs and hocus pocus is correct. If you are still not convinced of this, think of it from another way. If what they say is correct, and they can tell when the market goes up and down, why are people losing money in the market? If this information or way they trade is so good, wouldn't their 'disciples' spread the word and sell it for a profit too?

The truth of the matter is that sometimes, there is a basis for certain trends occuring, like the January effect. You can read about the brief on this January effect at Wikipedia. The crux is that investors learn and whatever trend has been identified has been made known and become public knowledge so there is no arbitrage (profiting from price imbalances in different markets to make a sure profit) opportunity left.

So 'time' is the one major consideration you have to make as an investor. Not timing. This time refers to the time horizon of your investment. Are you a short term or long term investor? The holding period for your stocks and shares affects your ultimate returns on your investments. Look for passive and active investment method in google and make up your own mind.

Bear in mind that one of these methods, active investments means that you trade more often. So which one do you think the stockbroker prefers? So be careful if you read articles which praises the active method to high heavens. Look for independent academic articles with research on this topic and form your opinion. I already have mine, and it is the Warren Buffet method. His favourite holding period for stocks is "forever".

Therefore, when you invest, prepare to invest or hold for more than 1 year. You may even have test the limits of "forever" that Warren Buffet loves. The story behind the "forever" time horizon of his investment is based on two words- "Compounding Interest". The only time that matters to an investor is when he or she is divesting the investment and taking out cash.

We will look at the next step in the preparation to buy shares in a follow up blog post. Have a nice weekend!