Markets have been in gyration since Syria used chemical weapons a few weeks back. After US & British citizens, alongside most of the G20 nations expressed their disinclination over a direct attack, the US has since revised its approach to a diplomatic one (this of course, after being strong armed Russian style by Vladimir Putin).
What this basically means is that going forward, news from the Syrian issue will be less likely to affect markets and that the next big issue being anticipated is the Fed meeting on Thursday (Singapore time).
At any rate, I had earlier posted that a solid investment plan would involve waiting patiently for Blackswans and then buying into the decline (you can see the post here). This Syrian issue would certainly classify as one.
On hindsight however, how many of us were able to pick up the stock at the recent bottom (STI: 3,120)? I was aware of the opportunity but personally did not pick up any stock as i had mistakenly speculated that the US would go ahead with their missile strike causing markets to fall further.
How will we then capitalise on a blackswan, after spotting it? Even with a Blackswan, when exactly is the right time to buy into it? I went on to identify peaks and the subsequently troughs over the period FY10 to YTD 13.
I've always had this idea that if we bought into the market every day that it was red, we would outperform the market in the long run. But what if, each of us had a trigger limit, where we buy into the market after it has fallen a certain percentage from the previous peak?
The above table shows the average purchase price and the degree of market outperformance at various trigger limits.
It suggests the following:
Greater Trigger Limit (vis-a-vis Smaller Trigger Limit)
- Fewer opportunities to buy into the market
- Greater market outperformance
Implication:
- Greater Buying Concentration - To compensate for the smaller number of opportunities we will have to buy more at each occasion.
- Lower Transaction Costs - From buying at a smaller frequencies.
- Opportunity Cost - During periods between buying opportunities, you will have to stock pile cash with possibly negligible returns.
- Capital Gains Over Dividend - Dividend will be foregone for greater capital gain.
Conclusion:
I arbitrarily chose my trigger limit to be 9%, which translates on an averaged basis, to purchase stocks once every 5 months.
I arbitrarily chose my trigger limit to be 9%, which translates on an averaged basis, to purchase stocks once every 5 months.
For everyone else, pick a trigger limit that suits your style and preference, stick to it and make money in the long run.
