Sunday, 6 October 2013

I Prefer to Worry About Buying Than Selling

Whenever we buy something, we always talk about price. Be it simple routine purchase such as daily groceries, to expensive big ticket item such as cars or properties. We are constantly looking out for bargains to buy at a low price, as that symbolises value. Of course, I am assuming that we are not substituting quality for value here. The goods we are trying to buy must be of good quality, and within this condition we seek to establish value in our purchase.

However, if the goods are of bad quality, it will not be a buy for me no matter what price it is selling at.


We should instill same attitude into our investment decisions to only look for good quality companies, and seek to buy them at bargain price. As a stock purchased at  price low enough is considered half a battle won in my opinion. Purchasing a stock at a price so attractive that I am more or less certain that it will earn me a profit in future definitely trumps buying at a fair price and hope that the company's future growth matches the expectations built into the current price. It is better to just worry about your investment decision once, at the point of buying, instead of twice, at point of buying and selling, isn’t it?

There are several market situations which we can capitalise on to buy a stock at an attractive price. One is during market crash when the index drops 20% or even 50%. Examples include the 2008 GFC, or 2011 European Debt Crisis. However, these opportunities do not happen very often, probably once in a few years.

Another opportunity that happens more frequently is when the company you have been eyeing encounter temporary speed bump in forms of missed sales target, one-time customer insolvency, or failed investments that result in write-off. Think Osim few years ago below 10 cents. Or more recently, Yongnam’s customer default (Alpine Bau) and failed bid to build Myanmar’s airport.

Ideally, one should have the patience to only buy during favourable market situations as above. Quoting Warren Buffet, you only swing your bat when the pitcher throws the ball at you in those few spots with high probability of home run!

I would not say I have master the art of perfect swing as I am still sharpening my investor psychology. That’s why aside from keeping a close watch on market pull back and company hiccups, I also divide my investible fund into 3 tranches and will buy into stocks in my watchlist in phases. For example, I will enter when STI drops back to previous support at around 3,000 points. STI at 2,600 will trigger the second rounds of ammo and beyond that, perhaps 2,000 will prompt me to deploy the remaining fund. The key is to be as mechanical as possible and remove emotions from the purchase.

It also helps that the stocks I am eyeing are paying out decent dividends and it helps me sit still during the wait between tranches.

Well, the devil always lies in the details. In this decision making process, the discipline to stay with the strategy and execute at the right time are important, which an investor should always work on.

4 comments:

  1. Hi CSCCC

    Like you, I would also enter a few rounds during the drop, rather than waiting for a super big drop to enter at once. After all, I couldn't predict the level it will drop so I will never know when is the lowest until it is all blown over.

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    2. Oops accidentally deleted the reply..
      Was saying it is impt to be in the market when index drop to the mentally drawn up 'low enough' band to partake in the long term up trend. Its more of an art than science.. approximately correct is the best that we can aim for

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  2. CSCCC,

    In retail, we say merchandise well bought is merchandise well sold ;)

    Ex-purchaser me

    ReplyDelete

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