Buy or Sell?
To answer the above question, I would like to ask whether you are a short-term trader or a mid term position taker or a long term investor.
NASDAQ chart in 2011.
You may be asking why am i pulling out the chart of NASDAQ in 2011. It is due to the fact, in 2011, the same concern about inflation was prominent in the market. After years of “free-money” pumped into the system then post GFC, it has caused the inflation numbers to rise then in 2011. The rose in CPI started in March 2011 and peaked in September 2011. And with the benefits of hindsight, the CPI numbers ease off after that and market continued its climb in 2012.
NASDAQ 2011-2012
NASDAQ from bottom established in September 2011 to present year.
Thus, from the historical charts and similar events happening in 2011, you can see why i have asked whether you are a trader, a mid term position taker or a long term investor.
Hey Alan, no crisis is the same!
Oh yes, that’s true. But the way investors, or should I say human beings, reaction to these crisis is always the same, regardless of the nature of the crisis. That’s the reason why we always go through the same “Boom and Bust” cycle, regardless of the crisis that we go through. Be it a structural problem (Global Financial Crisis), currency problem (Asian Financial Crisis), government debt issue (Sovereign Debt Crisis), Oil Crisis (2015, 2020), Health Crisis (2003, 2020), the way the market reacted have always been the same. Though there were some difference in terms of timeline, intensity, sectors more affected, etc.
Another reason why market is so unpredictable in the shorter term is the fact that the market is filled with emotions, euphoria or fear. I have been a hedge fund trader that required me to put in 20-30 positions in a day and it was hell for me honestly. I have realised for the past 24 years in the market, i am more suited to be a position taker and of course, that allows me to have some quality time as well.
I would like to answer some fundamental questions on the technology questions to have a convicted call.
1. Is technology here to stay?
2. How do I managed the risk?
3. Do I focus on timing the market or time in the market?
I think we have a clear answer for Q1. I hope you answer is a yes as the quality of life has been improved tremendously through the use of technology in the past century. Even the vaccines that we are seeing now during the pandemic is a result in the advancement in the medical technology. We sure cannot live without the benefits that technology brings. I do agree that some parts of our human life are negatively affected by technology as well. Like the lack of human interaction which may create social problems in the years to come. That is another debate for another time.
As for Q2, we need to answer the earlier question about whether you are a trader, position taker or investor. Of course I believe it is still about “time in the market” rather than “timing the market”. But if you are a trader, of course, timing the market is what you do. But for the usual investors, time in the market will definitely mitigate some of these risk. The US market returned about 12% per annum since its inception more than a hundred years ago. It didn’t grow at 12% each year but the average return is 12%. There are years that see negative returns and years that see exorbitant returns as well. But as the time in the market increases for investors, statistically, the result will be skewed towards the norm (which is 12% per annum). No doubt, we will see swings periodically and we can’t shun that as it is the behaviour of the market.
With the above, I have also answered the third question.
I hope that if the market does get volatile, at least you know that is something to expect in the coming third quarter and mentally, you will be prepared and know what to do. As an investors, I will take this opportunity to buy into dips on good technology counters. As history has shown us (Nasdaq charts above), over time, the Nasdaq is expected to ride through these volatility and emerge higher over time. But with a clearer roadmap and what to expect, investors will be more confidence in buying the dips. The norm that i see investors do is always chasing the price when the market rallies and cut their positions when a healthy correction kicks in. Thus, i hope that this article will give readers more sense if the pullback do materialised.
On a personal note, I will still be invested in economy reopening themes, and rotate to defensive sectors, like telco. For tech counters, I would sell some into strength as i never know for sure my forecast will materialise. Core positions in apple, alphabet, IBM, AMD, will stay.
Have a great week ahead! Again, the above are strictly my views and only for informational purposes. I do not have a crystal ball at home:)
Please read disclaimer.