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Foolishly chasing the market |
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Written by Wilfred Ling
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Sunday, 16 July 2006 |
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Recently I attended a training session conducted by a unit trust platform provider used by many advisers. In the training session, it was shown to us the business growth of the platform. When I looked at the chart, I was very disappointed and sad.
What I saw was that during the bear markets and as well as during the SAR period, unit trusts market was very bad. There were very little unit trusts sales. In other words, the population was fearful and did not dare to invest. Subsequently when the bull starts to run, the sales volume for unit trusts went up in an exponential fashion. Effectively what I saw in the chart is the kind of investors' behavior that is guaranteed to make losses.
The sudden interest in unit trusts during the bull time and the lack of interest during the bear time shows that people are buying high but are either selling low or not putting in new money. This behavior was repeated during the dot.com days when people buy technology stocks and unit trusts despite the insane valuation. When the market crashed, instead of using the opportunity to dollar cost average down, people parked their monies with structured deposits that is almost guaranteed to return the capital to the investor with little upside. For the last few years when the bull starts to rage, we are now seeing the same behavior of people chasing after the bull. It has been said that the market will be very bad for the next few months. I am no fortunate teller but what I know is that most people will panic and sell. It is during such a bad period that we can identify the man from the boys.
Someone told me this: The market only rewards those who are courages and believes in buying cheap.
I want to add one more: The market punishes the rest of the population who chases after the bull. I think most people have been punished. The sad thing is that this majority continues to put their retirement funds into jeopardy through illogical investment decisions. I really want to help them but when i explain the jargons of the finance world, nobody really understood what I have to say. Then my clients will finally ask the most common question: "Can you promise good return?" In my heart, I shake my heart knowing that this person really does not know what he is saying. The irony is that who do not understand what they are saying need help.
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