AS the FBM KLCI breached below 1,500 and fell into correction territory last week, the broad based market selloff appear to have spooked many retail investors.
To gauge sentiment, it is easy to realise how many of them are in fact hesitant at this juncture to take a position while some are even considering to cut losses and throw in the towel.
This is the psyche of the retail investor. Most are gung ho when the market is rallying.
However, when the market turns as it is, majority would either stay at the sidelines or stop investing altogether.
It would appear their confidence evaporate altogether. Why is that so?
Since the pre-budget 2022 rally, the FBM KLCI did in fact touch 1,600 twice. Since then it has been on a downtrend where the market has been struggling to find the bottom.
If any retail investors have been averaging down along the way, probably one would have run out of bullets by now.
Scaling one’s entry and being patient are immensely crucial for retail investors to be able to sustain a down cycle. The reason is due to the limited capital available for investment purposes.
During a down cycle, the market would always appear to be flooded with never ending bad news.
Bursa gallery twos
Be it the Omicron variant, the United States Federal Reserve taper, tech bubble in the United States and many other negative headlines.
However, if we were to look back a few months ago, such themes were already in play except Omicron.
Of course there were always risk of new variants but entering the winter months in Europe and countries north of the equator, flu incidences were bound to increase significantly anyway.
These are not information which are hard to see or process. The question is, to what extent is our local market policies and economic measures supportive and catalytic for a strong market.
In the current climate, apart from a drastic change in direction from the Ministry of Finance with regards to supportive policies and organic improvement or growth of the private sector, I do not see any encouraging catalyst in the near to mid-term.
However, that does not mean I am bearish in terms of taking investment positions. On the contrary, with so many companies performance far from its peak throughout the year, value have in fact emerged for many of them.
I would even go as far as to say, any investor can easily take a position in a relatively good quality company now and stand to do well in time. The key word is time.
During a market euphoria, everything is moving up irrespective of the underlying qualities of the company, compared to a downtrodden market where many companies valuation appears undemanding despite the fundamental qualities.
Under which circumstances would it be easier to make an investment decision to buy and hold?
The latter would always be much easier provided fundamentally and structurally, nothing has changed for the company or the economy.
Hence, a weak market is the best time to build up a portfolio that can do well over a long horizon. It is a time of portfolio construction.
After all, not every day blue chips companies would be trading at such attractive valuations and yields coupled with potential economy recovery in sight for 2022.
Again, my emphasis is on good quality companies backed by earnings instead of those solely based on “promised prospects”. For a fundamentalist investor, such market is the best time to capitalise on the opportunities.
With sufficient patience and a strong stomach to withstand any potential prolonged down cycles, a fundamental investor can do very well by positioning themselves for the future as many companies are coming from a low base.
Buying on weakness is always easier said than done. It is psychological more than anything else.
Understandably, it is always easier to ride on an uptrend than to invest against the trend or to be a contrarian.
We always hear “buy low, sell high”, but how many actually do that? Judging from the readers who reached out to me during good times versus present, I sense more hesitancy and fear.
Some go as far as to tell me that investing is not for them and they are considering to quit altogether.
Investing is like believing in a religion. It is good to have a belief so long as it guides you in the right direction.
With over seven billion people in the world from diverse backgrounds, ethnicity and value system, it is hard to have a one size fit all.
In fact, diversity is what makes us unique. Similar to investing, whatever methods or approach out there, we should always adopt the one that best suits us.
It ought to be what makes you feel comfortable, competent and delivers the best outcome.
As a fundamentalist, I believe companies have an inherent intrinsic value.
It is my ultimate truth of investing. In my view, to throw in the towel and give up investing when the market’s chart is not favourable or moving against you would not be the best way to approach the stock market.
Timing the market is also another area where many retail investors try to do but fail miserably.
It is very difficult to catch the bottom even if one is a world class economist.
Warren Buffet once said: “The real fortunes in this country have been made by people who have been right about the business they invested in, and not right about the timing of the stock market.”
So leave the market timing endeavours to the fund managers and professional traders, focus on playing to your advantage as a retail investor; which is to buy and hold good quality companies while letting time to work for you.
Ng Zhu Hann is the author of “Once Upon A Time In Bursa”. He is a lawyer and former chief strategist of a Fortune 500 Corp. The views expressed here are his own.