Why Buy Low And Sell High Is Useless Advice

Why Buy Low And Sell High Is Useless Advice

I hope this will be the last negatively titled article. So much bad advices have been given out of context by gurus such that I felt that someone have to make a stand when it comes to these advice. The previous article Why Buy Term And Invest The Rest Is Bad Advice captured many eyeballs but I would much prefer to build a personal finance site that is more positively charged.

Today, the article focus mostly on the strategy buy low, sell high and why it is useless.

Why Buy Low And Sell High Is Useless Advice

Why Buy Low And Sell High Is Useless Advice

 

What is Buy Low and Sell High?

The intention for investment is very simple. It is to make money (repeat this in your mind). When you make an investment, you must have every intention for your investment to grow in value in future. Take an example of Facebook (FB). In 18 May 2012, the share price of FB was $38. When you invest into FB at that time, you would have strongly believe it would grow. Today, 9 July 2021, the share price is $350. You would have made 816% by “buying low and selling high”.

Why Buy Low And Sell High Is Useless Advice Meaningless Facebook Stock Chart

Why Buy Low And Sell High Is Useless Advice: Meaningless Facebook Stock Chart

This advice is often easy to say but in reality very difficult to do. Worse, there are many experts out there who will confidently claim that they have a secret system to buying low and selling high.

I offer you 3 reasons why this advice often does more harm than good.

 

It Assumes A Trading Mindset

If you see any guru who preach about “investing in the long run” and “buy low and sell high”, run away and run away fast. These 2 concepts simply DO NOT mix well together.

The notion of “buying low and selling high” suggests that there is a certain price that you would like to buy and let go. Often, these entry and exit points are obtain from the study of charts (technical analysis). In most cases, the timeframe of this strategy is shorter in nature to make a profit in the stock market.

If you have invested into FB for the long run in 2012, you would be in a lot of pain thinking when to sell simply because FB would have repeated tested the all time highs every few months. The whole intention of “investing in the long run” would be thrown off course because this person is constantly thinking when to sell. Simply put, “investing in the long run” and “buy low and sell high” do not mix well.

At this juncture, I would like to state that if this individual is having a trading mindset. The “buy low and sell high” make sense. It is the essence of his investment thesis as much as “trend is your friend”. But not if you are a long term investor.

 

It Assumes A Symmetry of Returns

The phrase “buy low and sell high” implies that the stock market goes up 50% of the time and goes down 50% of the time. I believe that it would work well in that situation.

However, in reality this isn’t the case. Bull market are persistent. Bear market don’t last very long. Therefore, the cost of waiting for the “low” is extremely high.

To illustrate this case, UBS demonstrated this with 3 portfolios.

#1: Buy and hold

#2: Sells when the S&P 500 hits a new all-time high, buying back into the market after a 5% drop

#3: Sells at S&P 500 record highs, buying back after a 10% correction

Starting from 1960, an USD$100 investment would be worth the following in 2018 (when the article was written)

#1: $28,645 (Yes. No typo here)

#2: $422

#3: $390

You can see that strategy #1 beats the other “buy low, sell high” strategy hands down. The cost of waiting is terribly high if you follow a strict “buy low, sell high” strategy.

 

It Assumes A Strong Psychological Mindset

While, it is almost impossible to know when the worst days are, buying low is not easy at all. I will take the most current event as an example.

Disclaimer: This is not a buy/sell recommendation.

Alibaba (BABA) stock price plunged down to a new low at $205 (9 July 2021).

In 27 March 2018, revenue for BABA is 226.9 B Yuen. Share price was $192.

In 31 March 2021, revenue for BABA is 798.6 B Yuen. Share price was $229.

While revenue increased 250%, share price only grew 19%. This new low has been attributed to the CCP (Chinese Communist Party) clamping down on Chinese Technology Stocks. Several gurus are calling “sell” because of regulatory risk. Many bloggers are also selling BABA because of “opportunity cost” and believe that money could be put into other counters that is in momentum now. Honestly, I don’t blame them. It is not easy to see your stock price being beaten again and again. It isn’t psychologically easy when price is down. Nobody likes to be wrong. Nobody likes to be wrong for days, months or years. Often, people may even sell at a lost because it may be psychologically difficult.

Long term value investors however are adding into BABA. Among which, Charlie Munger and Mohnish Pabrai are the more noticeable names that are adding into BABA.

 

Final Thoughts

Disclaimer: I have mentioned some companies above for illustrative purposes. These are not and should not be taken as a buy/sell recommendation.

Personally, I think “buy low and sell  high” is an over-simplistic investment thesis. While, it is easy to explain it in theory, reality often paints a different picture. I feel that you should focus on simple, actionable and personalized investment thesis to help yourself achieve the financial freedom that you want.

 

Chengkok is a licensed Financial Advisor since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.  

He will be happy to provide professional advice to you personally.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

My SRS Portfolio June 2021

My SRS Portfolio and Thoughts [June 2021]

My SRS Portfolio June 2021

My SRS Portfolio June 2021

It is scary how time flies. It was 3 months since the last updates. Here are some of my thoughts on the SRS portfolio.

The Standard Disclaimer: This is not and should not be taken as a buy/sell recommendation.

Before looking into using SRS to invest, these are some links you should read first before continuing.

Start Here: The $1 SRS Strategy

Basic Knowledge: 5 things you need to know about SRS when you are 40 and older

Your SRS Overseas Retirement Guide: 3 things you need to know about SRS if you plan to leave Singapore

For 40s and above: 10 SRS Investments to Consider Especially if you are 40 and older

Income Tax and SRS: How Much Is My Income Taxes [2021 Edition]

SRS Portfolio March 2021.

 

My Thoughts and Consideration

My SRS Portfolio June 2021 Data

My SRS Portfolio June 2021 Data

The price for SGX: HST is an ETF which tracks the biggest technology stocks in China seems to be under pressure possibly due to the USA-China trade tensions and also regulatory risk in China. However, business fundamentals have not change. This will remain as a core position in the portfolio. Unfortunately, the portfolio is lagging the US market due to a heavy exposure into this ETF.

Manulife REITS BTOU Q12021 Highlights

Manulife REITS BTOU Q12021 Highlights

SGX: BTOU fundamental numbers to be be quite stable. In the AGM, the management mentioned that tenants are gradually bringing their employees back to office, with the physical occupancy of 13% in Jan 2021 to 20% as of May 2021. Management are also opened to reviewing potential acquisitions across sectors. This could be good news for shareholders if the property is yield accretive. This will continue to be a core position in the portfolio.

New injections into my SRS might happen at the end of 2021. The injection depends on the potential taxable income in 2021. I’m currently looking into a product that is offered by an insurance company. The investment engine sounds great as it focus on value and growth companies which is the objective of my SRS portfolio.

 

Final Thoughts

Disclaimer: this is not and should not be taken as a buy/sell recommendation. Like what Charlie Munger famously said: the big money is not in the buying or selling.. but in the waiting.

Are you investing your SRS well?

Chengkok is a licensed Financial Advisor since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.  

He will be happy to provide professional advice to you personally.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

Why Buy Term And Invest The Rest Is Bad Advice

Why Buy Term And Invest The Rest Is Bad Advice

Why Buy Term And Invest The Rest Is Bad Advice Ferrari Joke

Why Buy Term And Invest The Rest Is Bad Advice: Ferrari Joke

Most of you might have read this joke before. Personally, I think it is easy to give a “good advice” like “stop smoking, invest the money and you will get a Ferrari in 15 years”. Realistically, is that true? I discovered that most people do not take context or circumstances into account before giving  “good advice”. This “good advice” might serve as no practical value at all if it is not applicable to the person.

In the financial world, we have many “good advice” around. In this article, I hope to debunk one “good advice”: “Buy Term And Invest The Rest”.

Speaking about advice: I’m a financial planner and here are 3 pieces of money advice no one ever wants to hear.

 

What is ‘Buy Term And Invest The Rest”?

John (imaginary figure) wants to plan for his financial journey. He read a few articles online and discovered that there are many people recommending “Buy Term And Invest The Rest”.

Buy Term: He can consider buying a Term policies for his insurance needs. A Term policy’s regular premium are generally cheaper than Whole Life Policies or an Investment Linked Policies (ILP) that serves his insurance needs (broadly speaking).

Invest The Rest: Because his regular premiums are generally cheaper, he now has more budget to invest in the stock market. He wants to invest in low cost ETFs (exchange traded funds) to reduce any fees. With low charges, this will take care of his wealth accumulation needs.

This sounds great. Personally, I think this is a great advice and a possible strategy for John to consider in his investment journey.

 

Then Why Do I Think It is “Bad Advice”?

Why Buy Term And Invest The Rest Is Bad Advice

Why Buy Term And Invest The Rest Is Bad Advice

This very simplistic advice often do more harm than good. One example that I would like to draw reference is giving advice to someone to lose weight. The secret to losing weight is very “simple”. All you need to do is just “Eat Healthy Food, Eat Less, Exercise More”. Yet, adult obesity rates in the USA (2017) is a shocking 42.4%. If people already knows this secret, then why are there still so many people who are obese?

This is because everyone’s circumstances and context is different! Duh.

Do you know that price of healthier food is around 2X of unhealthy food? For a person who is living from paycheck from paycheck, how would he/she be able to afford this new diet?

Do you know 95% of diets fail? For a person who has been on a donut diet for most of his/her life, would it be easy to follow this diet?

The conversation today is not about diet. By using the example of weight lost, I hope to be emphasize that everyone is different. This same advice could work for someone with a certain set of mindset and circumstances (maybe he is rich, having a 6 hours work week and a can-do mindset). But not for everyone.

 

So Why Is Buy Term and Invest the Rest “bad advice”?

Frankly, this advice works. But it only works with a given set of circumstances and context. You can consider this advice if you resonate with the following.

Balanced/Adventurous Risk Profile

I have the privilege of speaking to many people in my career. I have came across some partners and clients who are risk adverse in nature. They do not enjoy fluctuations in their asset prices nor do they like to see losses in their assets. Their favorite asset classes are typically fixed deposits, endowment or bonds. A stock portfolio may not be very suitable for this person’s character. Imagine if you force this individual to buy the ARK K ETF, I willing to bet that he/she will not be able to sleep well at night.

Long Holding Period

In theory, we should all be like Warren Buffett who has an “infinite” holding period. Buy term, invest the rest works ONLY if the person invest the rest and continues to invest the rest. However, this is something we don’t see practically.

A simple question to ask yourself or your friends would be this: when was the last time you sold a stock?

The average holding period of US stocks is 5.5 months. The average holding period for SGX stocks is 10 months. ETFs are slightly better. The average holding period for ETF is 6 years. If statistics shows that an average someone is only willing to hold for that short a period, then wouldn’t you be “investing the rest” temporarily? Will this help you achieve your financial goals?

I do acknowledge that there is a combination of factors that contribute to the short holding period. One example is cheap transactional cost. This seemingly good benefit actually destroyed wealth all around the world. In the past, transaction costs to trade was relatively higher that people are more willing to do it only when necessary. Because of the cheap transactional cost now, people are entering and exiting the market as if they are buying groceries in the market. Where did the long term investing go?

But my favourite is the “fear of market crash”. From 2008 until 2020, there have been thousands if not millions of articles/youtubers/gurus world wide calling for market crashes every single year. This keeps people from “investing the rest” into the stock market because they are afraid the market will crash every other month (read this again). Missing the five best days when you’re otherwise fully invested drops your overall return by 35%! Missing the best 10 days will more than halve your long-term returns. Research has again shown that not fully invested will have disastrous effects in the long run. Are you really investing in the long run?

Strong Emotional Stability (in the market)

Investing in the market is not easy. It does not matter if it is a passive strategy or an active one. Imagine if you open your brokerage account one day to see your robo-investing strategy lost 20% of your capital, will you feel afraid and fear that it will continue to drop?

I know there are some who will feel excited. However, I doubt this will apply to the general population.

Investment/Financial Planning Knowledge

When you buy term and invest the rest, there is a strong assumption that you know very specifically the kind of coverage you want and the structure for your insurance needs. At the same time, it also suggests that you know enough about stocks or ETFs to invest appropriately for the long run.

I do acknowledge that there are indeed talented individuals out there that really can do it. They don’t spend hours, they spend decades of their lives to master their financial planning.

Are you spending enough time to acquire these knowledge?

So What Is A Better Advice?

An advice is only good when an individual is able to act upon it in his unique circumstances and context. The best advice are often discovered through brainstorming, asking and answering good questions and also working with someone who is good at doing that.

Just like the best companies in the world hire the best minds in their strategy department, you should also “hire” the best minds to help you in your financial journey.

“Buy term and invest the rest” is a great strategy. However, it only works for a very specific group of individuals. You may or may not be suitable for this strategy. Remember, everyone is different.

 

Final Thoughts

I believe it is more important to focus on your priorities and your financial needs instead. It would be wise to rethink if these heavily blogged strategies (buy term and invest the rest) can serve you in your financial needs in your unique circumstances and context.

 

Chengkok is a licensed Financial Advisor since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.  

He will be happy to provide professional advice to you personally.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

Wealthdojo Annual Report 2021

Wealthdojo Annual Report 2021

To our partners, clients and readers:

Wealthdojo passed many milestones in 2020. Some of which personal, some of which professional and some of which are hearing stories of how Wealthdojo has impacted your lives.

Wealthdojo was created to serve you as an knowledge base, an inspiration and also a place to make informed actions for your financial journey. I have thought deep and at length of how to impact the personal finance scene in Singapore before creating “The Daily Learning” from Telegram.

But this is still Day #1 for personal finance in Singapore. I aspire to be the thought leader of personal finance in Singapore and partner you through your financial journey.

It is all about the long term:

I think that people underestimate – until they get older – they underestimate just how important habits are, and how difficult they are to change when you are forty-five or fifty, and how important it is to form the right ones when you are young.

Quote from Warren Buffett.

I believe that habits are the building blocks for success. My own personal finance started when I first controlled the desire to buy a playstation 3, the ongoing urge to drink bubble tea and temptation to mindlessly watch youtube during my free time. I don’t not have a playstation 3. I confess I do drink bubble tea (maybe twice a year). I make extra effort to ingest as much financial information during my free time (though I spend a lot of time reading manga).

I believe that heading in the right direction in a simple, sensible and consistent pace is more important than optimizing and being extreme. Those rarely work in the long run.

In Wealthdojo, I aim to make it AS SIMPLE AND AS TIME EFFICIENT AS POSSIBLE for you to work on your financial journey.

Working on your financial journey is not a “one-time off” like a house renovation. It is a like a grass patch that requires you to work on it constantly to create a beautiful garden full of flowers. It is my aim to help you create the bed of roses. Here, we start with habits.

By many measures, we came a long way:

Here are some key matrixes (unaudited) that I take pride in my journey in 2020.

  • Protected the wealth of 37 families through their insurance program
  • > $100,000 paid out in claims through their insurance program
  • 31 new families embarked on investment or insurance program
  • 82 articles written (2020 till 21Jun21)
  • Read 6 new books (I believe there was more)
  • 6 Online Webinars
  • Awarded Top 75 Singapore Investment Blog
  • Featured on Singapore’s Finest
  • Awarded MDRT (Top 5% Financial Consultants World Wide)
  • Top Article: 5 things you need to know about SRS when you are 40 and older
  • 100th article milestone

Goals of 2021:

I believe Wealthdojo (and myself) are still at the early stages of learning how to create more value to our partners, clients and readers. I want to thank the many of you who have given invaluable feedback on how to make it better and it will be done.

To improve the quality and value to you, these will be a few projects, goals and certifications I will be embarking this year.

  • The Institute of Banking & Finance: IBF (Advance) Level 2
  • The Institute of Banking & Finance: IBF (Qualified)
  • 10 new books (Only books worth reading will be introduced)
  • Inspire 50 new families to work on their financial journey
  • 12 High Quality articles (one longer article a month)
  • 3 High Quality Webinars
  • Continue being MDRT in 2021

One Final Story:

In 2019, I met Joyce (the name has been changed). She was not working at that moment of time. She has been feeling lost in her financial journey and also in life. At that time, she was spending more than she earns, accumulating credit card debts and also relatively close to retirement age. The financial scene is a very noisy scene. She always felt handling money was very complicated and she was too busy to handle them.

When she first read articles, it felt like an epiphany came upon her. She contacted me and the rest was history. In a simple, sensible and consistent manner, we worked on her financial portfolio from scratch (she started with $20,000 in her bank not including credit card debts). I’m glad to say that she is currently credit card debt-free, have a solid insurance portfolio and also managing a 6 digit investment portfolio.

She wants to impact the younger generation of her mistakes that she made over the years. She now spends her free time impacting youth in church. We still remain close in contact till today.

Joyce is an example that is not too late to start. I look forward to impact the lives of more “joyces”.

 

2020 was indeed an incredible year. I’m extremely grateful to my partner, clients and readers for your business and trust. I look forward to writing this annual report in 2022.

Wealthdojo Annual Report 2021

Wealthdojo Annual Report 2021*Photos Taken Pre-COVID19

Chengkok is a licensed Financial Advisor since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.  

He will be happy to provide professional advice to you personally.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Your Daily Learning]
Reviews: About Me

3 pieces of money advice no one ever wants to hear

I’m a financial planner and these are 3 pieces of money advice no one ever wants to hear

I remember my mom telling me to eat more vegetables when I was younger. At that time, I absolutely hated broccoli and only ate it because I can only play with my playstation after that. Years later, I can only assume eating broccoli was a great decision because I don’t really fall sick as often as my peers. I did not appreciate my mom’s nagging advice (I mean who did at that time) until years later.

Turns out that nagging found its’ way into adulthood. As a financial planner, I’m constantly giving money advice that no one wants to hear. But those who listened and applied the concepts tend to have better cashflow, protection and investment portfolio.

You might not like it, but it is for your own good.

3 pieces of money advice no one ever wants to hear

3 pieces of money advice no one ever wants to hear

 

#1: You Got To Save To Have Money To Invest

“I want to invest but investing more than $100/month is too much because…”

To set the context, these are people with good monthly income of around $3000 to $6000. I find it scary to have so many conversations with people who have issues setting aside money every single month BUT wants to invest. It is like wanting to bake a chocolate cake with no chocolate. Often, not having a Level #2: Abundant Surplus Creator set up is one of the main cause of failure.

Saving more than you need will buy you opportunity and freedom in the future. The usual guideline is to set aside at least 25% of your take home salary. This 25% will buy you opportunity and also freedom that you desire.

 

#2: Have A Backup Plan

“You will fail in life 33% of the time. Do you have a backup plan?”

Cancer hits 1 out of 3 people in Singapore. Each and every of us have a 33% chance of our income source robbed away when we are unable to work when we are ill. If you are lucky and detected it early, the effects may be temporary. However, if it is a major critical illness, the effects will be longer term in nature.

With COVID-19 still looming over our heads, I think it is clear that the next war we will be fighting is a Health War. No one likes to imagine the worst cause situation but if something really happens, you will be glad that you have a backup plan Level 4: Aegis Of War aka insurance especially medical and critical illness coverage.

Other forms of backup includes having adequate emergency funds.

 

#3: Don’t Time The Market. Invest For The Long Term

“I want to wait until the market crash (like in March 2020) and invest.”

You will be waiting for a long time. Before March 2020, it was Sept 2008. Before Sept 2008, it was April 2000. From 2000 to 2021, S&P500 is up roughly 189% with a CAGR of around 6%. It is certainly very easy to look back in 2008 or 2020 to say that it is the best time to invest BECAUSE it has already happened.

It is virtually impossible to predict the market. Investing may be all sunshine in 2020. However, it is not as fun and sexy as you think it is. The recent pull back has shattered some confidence in the market and you might be wondering what to do next.

Build a strategic investment plan and stick to it. We want to invest in companies that is of value and growing and hold it until it rewards us. You can take a look at some of the largest companies now that is rewarding investors. Companies such as Apple and Facebook are rewarding investors with price appreciation and also dividends over the last 10 years whether it is market crash or not.

 

Final Thoughts By Wealthdojo

Eat your veggies. Trust me, it is good for you.

 

Chengkok is a licensed Financial Advisor since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.  

He will be happy to provide professional advice to you personally.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me