Thursday, April 23, 2009

Right Time to Re-Enter Market

Sharing a thought...

Received several sms from some UT investors of mine enquiring whether now is the right time to invest, particularly since the index has been showing green these couple of weeks. What's your opinion? What advice to give?

Being their consultant, of course I have to give them a is still low, it is still cheap to go in, never time the market, invest for the long term and UT is not for speculators.

It really puzzles me why people would only invest when the market goes up or getting expensive compared to the reverse? Is it because it is comforting to invest when the bull comes charging and the investor is able to see "instant paper profit" with fewer units compared to seeing "paper loss" and more units purchased for the same amount?

For example (we will ignore the service charge for easy calculation) if the current market price is $0.25/unit @ $1,000, an investor is able to get 4,000 units compared 7,143 units when the price is $0.14/unit. An extra 3,143 units for the same $1,000!

We will use several assumptions here.....

Assuming investor A invested once only ie $1,000 @ $0.25/unit, in order to realise profit he has to wait for the market price to be more than $0.25/unit - a slow and long wait.

If investor A continue to invest when the market drops:-

$,1000 @ $0.25, units bought is 4,000, average cost per unit is $0.25/unit
$1,000 @ $0.14, units bought is 7,143 units

Total units in hand 11,143 units, Total Cost Spent $2,000

Average cost per unit is $0.18/unit ie total amount invested / total units bought => $2,000 / 11,143units

In the second scenario, the investor only has to wait for the market to be at $0.18/unit or more to realise profit compared to the first scenario whereby the investor only invested once @ $0.25/unit.

Being a smart investor, which is more rasional the first or second scenario? The second scenario is also termed as practising 'dollar cost average' which was explicitly explained in my previous blog.

So, right time to enter? Buy when it's cheap and sell when it's high - is the normal quote but who knows how high is high and low is low? Save regularly especially when the market is so cheap and let the professional fund manager do their work in selecting the good and quality shares to put into the basket of your chosen fund.

I always believe that investment is referring to the future. How much confidence do we have in the country's future - politically or economically, etc? If we are to flip the newspapers or watch the news on tv, we will note that government all over the world are working hard to pull their economy from the black hole either through fiscal or monetary policies or even change their country's investment policy to attract foreigners or encourage domestic consumption or boost economic activities. Financial institutions are also working hand in hand with the government to oil the economy engine. So how much faith do you have of the future? If you are unsure, my advice is not to invest as you might not be able to sleep well and end up having panda eyes! Otherwise, what is stopping you?
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