You are Not so SMART ! Why I still not happy with $10,453.02 profit I have made recently
As investor who has gone through many business and market cycles in the past 19 years of investing, Yes! I still made a terrible mistake and succumbed to our own biases in trying to time the market.
Although we still can feel some ripples effect from US Presidential Election from time to time but I think its impact on the stock market has mostly subsided, as we could see that Dow Jones Index rebounded strongly after that and keep trading at record high recently.
In the past two weeks, I keep pondering on what I have done in the day of result announcement of US Presidential Election.
While staring on the screen of plunging indexes ( where DJ future was down by almost 800 points at one time ), I have made a terrible mistake by selling some of my stocks in hoping to buy it back later at a lower price. ( ie. “market timing “ )
Concept explained: “ Market Timing “ by Investopedia
What is 'Market Timing'
Market timing is the act of moving in and out of the market or switching between asset classes based on using predictive methods such as technical indicators or economic data. Because it is extremely difficult to predict the future direction of the stock market, investors who try to time the market, especially mutual fund investors, tend to underperform investors who remain invested.
BREAKING DOWN 'Market Timing'
Some investors, especially academics, believe it is impossible to time the market. Other investors, notably active traders, believe strongly in market timing. Thus, whether market timing is possible is really a matter of opinion.
What can be said with certainty is it is very difficult to successfully time the market consistently over the long run. For the average investor who does not have the time, or desire, to watch the market on a daily basis, there are good reasons to avoid market timing and focus on investing for the long run.
Does Market Timing Pay?
While market timing is not impossible to do, few investors have been able to predict market shifts with such consistency that they gain any significant advantage over the buy-and-hold crowd. In the estimation of Morningstar, actively managed portfolios that moved in and out of the market between 2004 and 2014 returned 1.5% less than passively managed portfolios. According to Morningstar, to gain an edge, active investors have to be correct 70% of the time, which is virtually impossible over that time span.
The Cost of Market Timing
For investors, the real costs of lost time and opportunity are almost always greater than the potential the benefit of shifting in and out of the market.
Opportunity Costs: Research shows that, if an investor remained fully invested in the Standard & Poor’s 500 Index from 1995 through 2014, he would have earned a 9.85% annualized return. However, if he missed only 10 of the best days in the market, his return would have been 6.1%. Some of the biggest upswings in the market occur during a volatile period when many investors flee the market.
Transaction Costs: Countless studies have shown that mutual fund investors who move in and out of funds and fund groups trying to time the market or chase surging funds underperform the indices by as much as 3% due to transaction costs, especially when investing in funds with expense ratios greater than 1%.
My Transaction was done on the day of result announcement of US Presidential Election
Although I am making a profit of more than $10K on these trade, but I am not happy with that because some of the counters which I bought in early 2016 and June ( after Brexit ) were meant to keep for the long term especially DBS / Global Log and HKG Land which I have been eyeing for quite some time.
But why UMS ? which is giving you very good dividend yield ( total $4250 div collected ) and sitting with decent profit (total profit including div was about 24.7% in 1.5 years )? Yes, this is a totally absurd and terrible mistake !! You may notice another bias on this: “ Loss aversion “, keeping the loser ( like SCI / M1 / Keppel Corp in my portfolio ) and selling the one with paper profit.
It was really a bad “market timing “, I may not be able to buy back these stocks at the price I bought previously which I hope for after the presidential election .
Click Here : To know more about “ Loss aversion “
Why we often didn’t practice/ do what we preached?
Yes, we must always remind ourselves that “ We are NOT so SMART “! , I will need to read this book again to refresh my mind on all these biases and as a reminder on the mistake I have done.
As mentioned by the author: “ Whether you are deciding which smartphone to purchase or which politician to believe, you think you are a rational being whose every decision is based on cool, detached logic.
But here’s the TRUTH: You are not so SMART . You are just as deluded as the rest of us – but that’s OK because being deluded is part of being human “.
The moral of the story is “ No matter how senior or veteran you are and how long you have been in the market, we still make mistake and sometimes a terrible one ! “, so guys, don’t be too harsh to yourself if do make mistake in your journey of investing. Keep trying and learn from our mistake along the way, the most important thing is to have faith in the “market “ in the long run.
Also, I think the best way to avoid such “ impulsive trading “ is to stay away from the computer screen/market, hence, I will be on 2x staycation at our neighbouring country ( Malaysia ) + 1 family cruise on Royal Caribbean to Langkawi & Phuket + 12 days “Best of Swiss Alps Tour “ (only Mr& Mrs STE ) from now till end Dec, no matter how the effect of “ Santa Claus Rally “ will turn out eventually.
Less trading , less blogging from now till Dec.
Cheers & Enjoy your (school) holiday (for those have kids ) !!
Quote Of The Day :
Go without data roaming or in-country prepaid card. No data connectivity so can't check the market till reach free wifi spots. :-)ReplyDelete
Hi Uncle CW8888,Delete
Yah ! That's very true and one of the best option as well !
Thanks for sharing, I do have similar "problems" as you by timing the market and at times even though still making profits, I wished I could have done that a lot lesser over time.
Enjoy your super duper loongg holiday. It's going to be fun, especially the cruise and the Swiss Alps Tour!!!
Thanks for the comments , yah ! Is really hard to do the market timing , :(. , you too, enjoy your holiday ,,, I hope to take more nice photos to share ,,, especially on my trip to Swiss Alps ,,, :-)
My market timing is so so ...I hope to do better. Sometimes i do analysis after hoping to better understand the macro and specific company dynamic, and my actions. I would never be able to predict Trump dynamic on stocks. Every... well almost ... says is bad for stock before he got elected... is my personal "Black Swan" LOLReplyDelete
Yah ! Market seems volatile and hard to predict...we hope Trumponomics will have better impact and effect on global economic...lower tax may lead to more us consumption and more spending on infrastructure may spur economic...Let's hope for the best..Delete
oh dear. happened to me as well. i have so much to hear....!ReplyDelete
Hi Stream of Expenses,Delete
Yah! I guess it happens to most of us and retail investors...we fall to our own biases most of the time..
I am also very bad at timing the market. Often bought at the high.ReplyDelete
Hi Sweet Retirement,Delete
Yah ! Is really difficult to carry out Market timing... :-(
I'm so sorry that your impulsive trading did not end well when The Donald trumped on 9 Nov. I too was tempted to sell my entire portfolio that day as well. I did not sell b'cos I remembered the Brixit re bounce. 28 Nov, DBS have surged pass PB parity at $17.39. Stay on the net for the better dude.ReplyDelete
Thanks for the comments, Yah..stay away from the market might be better option to avoid such " impulsive trading " ...glad to know that u are doing well in controlling your trading button during this volatile market..
I was tempted 2 to sell as well on the day the Donald trumped. Thank God I remember the Brixit rebounce. Keep your bank share dearly close to heart for good times is yet to come.ReplyDelete
Glad to know that u are not selling ...yah ..keeping good fundamental stock for the long term with definitely pay off one day .