Sunday, April 26, 2009

Start Buying Now. Seriously. Part II

Let’s look back at the Asian Crisis. The Asian Crisis bottomed in the year 1998 for Singapore. Which month was the bottom?

Before I tell you the answer, let me ask you another question. If I gave you the chance to buy at any point in 1998, would you?

You would, and you should, because no matter which month you bought in 1998, you would have made from +60% to +200% by the end of 1999, the year of recovery.

Let me give you another example. The economic slowdown associated with the bursting of the tech bubble, Iraq war and SARS bottomed in 2004. If I gave you the opportunity to buy at any point in time in 2004, would you? Of course you would, because you would have made up to +200% over the next three years to end 2007.

This is my point about investor psychology. When you look back in time, the difference of a few months means very little. But when you are living in and experiencing a recession or a financial crisis at the moment, the feeling is very different. Day-in, day-out, you are bombarded by the doom and gloom, and even one month of seeing the market go down feels like an eternity.

It’s like a kid who hates school. Six weeks of school could feel like six months, and six weeks of holidays feels like six days to him. It’s actually the same amount of time, it just feels different.

Now we are in an economic crisis. I don’t know when the exact month of the bottom is. For all we know, it could be over, in early March 09, or it could be ahead of us.

If you have the money to invest over the next few years, it comes down to this question: do you think the economy and the markets will recover? Your answer should be yes, because they always do. It’s no magic that they always do, it’s just that human beings want economic growth, and work very hard to attain it. Any kind of problems that crop up are dealt with in time so that we can increase our consumption and improve our way of life.

Already we are seeing some signs of economic improvements. This crisis started in the housing market in the U.S., and the latest numbers show an unexpected increase in housing starts and existing home sales. The banks, who were amongst the worst hit, are also variously reporting that they will make profits in 2009.

On 23 March 2009, various key markets around the world jumped 6 to 7 percent, including Japan, Hong Kong, Singapore and the U.S., reflecting some of these improvements in economic numbers.

Where is the absolute bottom? Did we miss it? Now that we are past the lows in March, and markets have jumped significantly, will you refuse to buy and wait for the same lows in March to come back again? What if it doesn’t come back?

You have to realise that it is a fool’s game to try to look for the absolute bottom.

There’s no way to catch it, and there’s no way to be faster than the market when the turn comes. The only way is to buy when valuations are low enough, and then hold till the recovery comes.

Some years down the road, when you look back at late 2008 or the whole of the year 2009, it’s going to be a blur to you which month it was that the market actually bottomed and turned.

You are going to wish that you have invested around this time.

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