Saturday, June 5, 2010

Would You Be Better Off If You Ignore The Stock Market

The month of May had been a pretty depressing month for the stock market,of course that include the KLSE. Again, a depressed stock market is a good time for investors. Been through and couple of blogs, forums and friends and I see something that I don't quite understand as always. Basically I see two sets of people; one which is extremely glad that they have sold of their stocks earlier while the other are cursing their luck and selling off their stocks cutting losses. Stock market is indeed very emotional huh...

To explain this, I think it might be better if I tell a story.

(This story is actually taken from a friend of mine. It is a little elaborated but did not run far from the actual story itself)

The Story of Mr.E
Let's take one of the stocks from the Great List, Hai-O Ent (Okay okay, I only have two. It's not easy to find a good investment what more a great one). If Mr.E purchased this stock a year back he would have bought at around RM1.70 (adjusted price after stock split and bonus issue). Mr.E likes to monitor the stock price after he bought one. Say, if he kept it for 3 months, the price would have gone up to RM2.12, a cool 24.7% gain. Around Sept 28 to October 1st, Hai-O stock price rocketed from RM2.25 to RM2.64. Upon seeing this, Mr.E says Waoo!! huge gain and sold off his stocks at this point. But, Hai-O price continues to rise. Mr.E felt "Gosh I should never have sold it". He came back and purchase again at RM3.00.
Hai-O rally comes to a halt around mid Nov, stock price plummeted from the high of RM3.33 to RM2.56 within 2 weeks (a 23% lost). That got Mr.E panic and he sold off at about RM2.80. Hai-O stocks turns around after that and continue to rally to about RM4.00 at the end of Feb. This rally gives Mr.E confidence to purchase again at about RM3.50.

In this whole process Mr.E makes a gain of RM1.24 per share or 73%. If he ignores the market and held on till the end of Feb, he would have make RM2.30 per share or 135%. Now you see the difference. One might have argue, if he bought and sold at the lowest and highest point, he would have made more. BUT, the question is, when will it be the lowest and when will it be the highest? What if you sell at this moment and a minute after it hits the highest point? The fact is no one could convincingly predict the stock price even a second later.

The stock market is very emotional and the prices are emotionally fluctuating for most of the time. If one monitor the stock price constantly, chances are, he is pretty likely to be driven by the emotions of the stock market into making irrational decision.

Don't get me wrong, buy and hold doesn't mean buy and sleep. It is commonly misunderstood among the two. It doesn't mean that you can buy and ignore your stock altogether. What it mean is that one should ignore the stock price but monitor the businesses, management and fundamentals itself. For me, I normally check the announcement from the KLSE website on my holdings after 8pm (that's when they got everything updated) almost everyday. My portfolio is rather focus, so I don't have much to read, once a week is sufficient. Other than that, it is from the Btimes, TheEdge and BizStar. And most importantly, I rarely check the stock price and I guess that's what makes me sleep well.

To answer the question, I would say yes, you would have been better of if you ignore the stock market.

This comment is based on my personal thoughts, opinions and my risk tolerance. It should not be considered as an investment advise. Please consult your financial advisor or do some research of your own before making any decision. You might have your own thoughts. I would love to here from you. You can always place your comments here and or email me privately at

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