The 10% Strategy


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For a conservative investor, the greatest despair is missing good opportunity to invest. The intention of a conservative investor is to play safe. He doesn’t want to take too high a risk that ends up losing his capital. Patient is his motto of investment. Sometimes, patience doesn’t pay. The more a conservative investor waits, the more he feels regret. Opportunity waits for no one.

The ironic scenario of the market is that the bull moves slowly up the staircase, but the bear drops down from the window. On the other hand, the bull moves slowly but surely, and the bear seems never come. When a conservative investor waits, his patience is being tested and drained sooner or later. When the time he runs out of patience, he rushes in nevertheless, then the bear suddenly appears from nowhere.

Market Timing

Market timing is a gimmick that all investors should avoid. No one can time the market with accuracy, as the saying goes. Conservative investor often lives in the fantasy of thinking best timing to invest, but such best timing never appears.

The killing of Iranian Official by American air strike last Thursday, January 2nd, looks likely a good way to bring down the market for conservative investors to get on board. Unfortunately, it may not cause a significant market pull-back, if there is a lack of retaliation from the Iranian military intelligent over the weekend. Most analysts think most probably there will be no strength from the Iranian side to do anything to fight back. As a reason, the US markets did not react in any panicking behavior on Friday.

If then, the more we wait, the more we lose out. Time itself is costly in the investment sense. Because investment profit takes time to grow and the growth must be consistent.

For example, if you have a high return in the first half of the year, but at the second half of the year, though you did not lose money, neither have you gained any return, your entire year’s return will be flattened out significantly. This is how detrimental the effect of time to our investment return. Waiting itself costs us a lot if we do nothing. This will be particularly true if we see ourselves missing a significant bull run.

Chart A ~ A bull run may be a steady run up for months without significant pull-back.

Market trend back in 2013, for example, everyone expected a pull back after some rally. But there was no significant pull-back since January up to May 2013 (Chart A).  There must be a lot of frustration and disappointment then for those waiting “candidates.”    

In this article, I would suggest using the strategy of 10% to avoid such peril. Whenever investor sees opportunity to invest especially when the sky is clear, he should start to accumulate slowly. The best start is investing 10% of his total capital regardless of price condition at that time. If he invests 10%, his feet will get wet. Once his feet get wet, he will move on to get deeper commitment.

Causes of Market Pull-Back

Whenever there is a significant market pull-back, it is always caused by some kinds of financial crisis. Economic news will always paint a very negative picture as if the doomsday is imminent. Then conservative investor will normally stay at the side and miss the best opportunity to enter market. This is a very common irony. But if he has his 10% capital down, he will have to “rescue” his “soldiers” out there by investing more.

But, if the market pull-back doesn’t come, he would not feel that bad too, because he has at least his 10% down working for him. In short, using this strategy, whenever he invested 10%, he will hope the market pull-back will come immediately. If not, it is alright with him. Either way it is still a win-win situation. Don’t you think this strategy work?

Happy investing but invest safely!  

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Disclaimer

The view and opinion expressed are personal views of the author and are subject to change based on market and other conditions.  This write up does not constitute sole advice for investment decision. Investors are advised to do further reading and research to conclude individual decision.

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