oh ya, buy high and sell higher. These are the common phrases that i have heard for donkey years. Who doesn’t know that my mother is a woman…
Ok, jokes aside, my apologies for being crude on the first day of phase 3 (heightened alert). I guess being ‘Locked-up” at home for the past one month has negatively impacted my mind for a while.
Watching youtube lately has exposed me to a number of financial education advertisements. I did some checks and realised that some of these institutions are charging a few thousand dollars for a few days course.
Honestly i wished it was that easy.
My belief is that education must be readily available to anyone, rich or poor, as an avenue out of poverty. And this education must be free, or at least subsidised like our education system here in Singapore.
So here i am, hoping to contribute with my puny little brain (if i have any) to help readers navigate around this volatile market, with facts and figures, and science. Best of all, it is totally FREE!
I guess many of you have heard, “No one crisis is the same”. But i would like to add my own statement after that, which is “human beings reaction to these crisis are always the same”.
Why? You may asked. Because we are dealing with market psychology. It refers to the prevailing behaviours and aggregate sentiment of market participants at one moment in time. In another words, it is the consensus sentiment of the market, as a whole. The common terms used to describe this market psychology are greed, fear, anxiety and euphoria. Oh yes, these days they call “euphoria” as FOMO (fear of missing out).
With this, I would like to quote Warren Buffett, “be fearful when others are greedy, and greedy when others are fearful.”
Usually, when the market is green all over, it wouldn’t take much for us to click on that “buy” button. But wherever market is red all over, we hesitate. When the market is offering discount, we fail to capitalise on that and always choose to buy at a premium. This doesn’t make good sense over the long run.
In order to see improvements in your investment returns, we first need to change this mindset. The mind is a powerful tool. I was a beginner once and i knew how it felt to buy during the “down” days. But I made that decision many years back to change that mindset and interestingly, it feels weird for me to buy on a green day nowadays and always eager to take positions on a red day.
The above chart explores the relationship between VIX (fear index) and the Dow, S&P500 and the Nasdaq.
It is very clear that each time the VIX peaked, the indexes were always at one of its recent lows. This further reinforce the theory of market psychology and it happens all the time. So what Buffett once said is still applicable in today’s market. So now, you know when to buy in future. That leaves you to research on the “what to buy?” question.