My supermarket timing was really bad.
When the Singapore government raised the Disease Outbreak Response System Condition (DORSCON) to orange (which was the second highest level of emergency) imposing restrictions on day-to-day movement in early Feb, I just happened to run out of essentials. So I made a trip to the supermarket to buy fresh produce, only to meet large hoards of panicked shoppers and rows of empty shelves.
The second time, early in April, running low on food and tissue papers, I needed to go to the supermarket again and it just so happened that the prime minister announced imposing circuit breaker measures (a euphemism for ‘lockdown’). As I feared, the fate of long queues and empty shelves awaited me once more.
Just today (21st April), I needed to make a trip to the supermarket again. And the prime minister of Singapore made a public announcement to extend the ‘circuit breaker’ till June 1st 2020. This time, I stayed at home knowing that I missed the supermarket timing once again.
I am really struggling to get the timing of trips to the supermarket right.
Has The Market Bottomed?
Last week, the S&P index roared back to life and it had recovered ~50% of the drop in March.
Ok, I cheated a bit mentioning the S&P 500. The American market did better than the other markets because you know, er… optimism! Actually, maybe the S&P did better due to the big tech firms that were doing relatively better than the rest in this pandemic. However, you also start to see the recovery of the other markets following suit.
China’s factories had also slowly started chugging back to life as restrictions on Wuhan had been lifted. Many other countries are also starting to consider lifting lockdown restrictions. Surely, this will be over soon, right?
On the other camp, I also read multiple experts saying the worse is coming, When the earnings are published, investors will start to realize the impact and the next big drop is coming. Afterall, during the last financial crisis in 2008, there were several rallies and the market did not bottom until March 2009.
Also, oil prices went negative, surely the worst is yet to come. Right?
When Should You Enter? Buy Indicators
I will not be talking about moving averages, trendlines, momentum indicators or any patterns in the stock market movement. Nor will I talk about PMI indices, Unemployment rates, Jobless Claims or other economic indicators.
I will not talk about buying stocks at the lowest price and selling them high, not the typical definition of market timing.
Instead let me talk about market timing from the perspective of a long term passive investor. When a person is ready to start investing – ‘entering’ the market.
#1 Do You Have A Purpose?
Before you start investing, you should always think about the purpose. Is it for your new home? Your children’s education? Retirement? Or financial freedom? This will help determine the investment timeframe, the target amount, the risk appetite and the plan to reach your goal. Once they are determined, then you are ready to enter the market.
#2 Do You Have Any Safety Nets? Any Plan Bs?
You will also need to have some safety nets in case of an emergency which may force you to sell your investments to raise cash at a loss. Typically, you will need an emergency fund of 3-6 months of expenses. Also, having a health insurance will help cover any emergency medical expenses. Having a life insurance will also help cover any lost income to your family if the breadwinner passes away.
Besides that, do you have any plan B in place? If a recession hits and you fail to meet your retirement goal, are you willing to work a few more years and delay your retirement?
When you have those in place, you are ready to enter the market.
#3 Stick To Your Plan, Rain Or Shine.
What is a plan good for if you do not stick to it? You will need to follow it no matter how scary the market can be. Ignore the market news if possible. Set up automatic monthly contributions. Forget about it.
If you can do that, then you are ready to enter the market.
Regardless whether the market had reached all time high or whether the market had fallen to an unprecedented low, a passive investor can start investing once he or she has done the necessary preparations.
In a sense, the timing is more dependent on our own circumstances and preparation rather than the timing of the market conditions.
Missing Best Days Can Affect Gains
As I had eluded in my opening paragraph, I am very bad at timing. In fact, I just bought a lump sum of an index ETF (VWRA.L) at the last week of Feb 2020, at the worst possible time, a few weeks before global markets around the world plunged into bear markets.
I watched as my portfolio fell 5%, 10%, ~20+%. I continued holding on to my positions stubbornly and bought some more while rebalancing my portfolio.
This is mainly because I have a long investment horizon and I am prepared for fluctuations in my portfolio’s value.
I might also miss some best days when I try to time the market. JP Morgan’s Asset Managment’s 2019 Retirement Guide shows just that.
I know it is tempting to sell off your positions to avoid the worst few days, but you might also miss out the best few days when you do that. And every best day counts towards your gains.
Given my track record of supermarket trips timing, I am pretty sure I will miss out on the best days if I tried timing the market.
Perhaps the time of passive investors is coming to an end. Market volatility is a perfect time for active investors to shine because if timed correctly, the active investors not only get to reduce their losses while passive investors fall with the market, they also have an opportunity to make huge gains. Market timing will then be very important.
However, for passive investors, we do not time the market in a sense we just start buying into the market when we are ready, regardless of how the market is performing.
Passive investors are the tortoise. We may be slow, but we are steady and continue to move forward.
There will be times when we are far behind the hares who are more nimble and speedy. That does not faze us.
Our goal as passive investors are reliablility, not speed. We just want to complete the race reliably, however long it takes.
The hares may be able to complete the race faster but they also have the possibility of falling out and losing the race if they timed their naps wrongly.