STI has fallen 125 points from the high, should you buy now?

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STI market

STI has fallen 125 points from the high, should you buy now? (29 Apr 16)

Some of you have missed STI’s sharp 432 points, or 17% rally from the intraday low of 2,532 on 12 Feb 2016 to 2,964 on 21 Apr 2016.

Chart 1: STI’s phenomenal rise since 12 Feb 2016

sti chart 29/4/2016

Source: CIMB complimentary chart as of 29 Apr 2016

Usual reasons of missing this rally are:

a) Fear that market may go down further when it hit 2,532 on 12 Feb. That was the 3rd time it tested 2,529 – 2,532 level;

b) No time to monitor the market but do not wish to place some limit orders due to point a above. Some people thought that they can buy when the market turns up but eventually they did not;

c) No fixed strategy of investing. Entry levels depend on mood, sentiment, time etc.

Since the high of 2,964 on 21 Apr 2016, STI has fallen 125 points, or 4.2% to close 2,839 on 29 Apr 2016. Given the current situation, should you

Buy now for rebound, since you have missed the earlier rally; OR

Sell to preserve your remaining gains; OR

Cut losses (to stem further losses) because you have rushed in to buy near the top around 2900+?

There is no clear cut answer to the above questions. I have emphasised before, and wish to reiterate that everybody is different. The question of whether you should buy, hold, or sell now and how much % invested you should be different from individual to individual.

Key points to consider are 

1. Your own risk profile

It is apparent that STI is at higher level than two months ago. Ceteris paribas, there is less margin of safety to accumulate now.

2. Return expectations

Some people are happy with 3-5% gain whereas others will opt for 20-30% gain. To be happy with 3-5% gain, it entails you to put in a larger amount. However, ceteris paribas, the probability of attaining a 3-5% gain vs 20-30% gain is higher. Nevertheless, the risk of losing more in absolute terms for every 1% move in the share price is naturally higher with a larger investment amount. Besides knowing your return expectations, you should assess whether your expectations are realistic in view of the stock’s volatility, fundamentals, price action, current market condition etc.

3. Invest with a total portfolio mentality

Some clients have asked me whether they should buy now. My first question to them is how much percentage invested that they are currently in. Except for my private banking clients, most clients do not have this concept. My personal opinion is that we should invest with a total portfolio mentality. This is important because your market outlook / view should influence your percentage invested in the market (see point 5).

4. Time horizon

Some of you only do contra, whereas other do swing trades with 1-3 months’ time frame. There are others who do not mind buying with a horizon of 1-3 years. Different horizons have different strategies. To take the extreme, if I can only do contra as compared to someone who has a horizon of 1-3 years, who do you think has a higher tendency and requirement to try to time the market?

5. Individual market outlook

Due to your work nature, or the people you mix with, you are likely to have some sort of view on the economy or market. Thus your percentage invested should be in line with your personal market outlook. If not, you are unlikely to be at ease with yourself over time.

How much % invested I am now?

I am currently around 35% invested. Although my comfort level on my percentage invested is around 30 – 50%, I may raise it temporarily to above 50% in the next 1-3 weeks for short term opportunistic trades. (My clients will be duly informed on new stocks which I have entered and any significant portfolio change.) My basis for the percentage invested is indicated in my blog.

P.S: The abridged version was sent to my clients on 27 Apr, Wed 3pm together with the Business Times article below.

Please refer to the Business Times write-up dated 22 Apr 2016 which summarised the various drivers which may affect the stock market this year. If you are unable to access the full article, suffice to say that some of the factors which may affect the stock market this year are energy prices, earnings, economy, rates, recovery and the referendum on Brexit.

Lastly, many new clients have asked me how I screen and decide which companies to take a closer look / write. To understand more about my basis of deciding which companies to write, you can download a copy of my eBook available on my website . 

P.S: Do note that as I am a full time remisier, I can change my equity allocation fast to capitalize on the markets’ movements.

Article written by: Ernest Ng

Disclaimer

Please refer to the disclaimer  http://ernest15percent.com/index.php/disclaimer/

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