I hope you are feeling a little more cheerful this week compared to last week, when many stock market commentators decided that they would scare investors witless about the possibility of America dialling back its money printing activities. I suspect some of those commentators might have been the same ones who poured scorn on Quantitative Easing (QE) when it was first mooted by the US Federal Reserve. I vaguely recall some critics who even doubted that QE would ever work because it had failed miserably when it was tried in Japan. But now that it has worked – and…
I hope you are feeling a little more cheerful this week compared to last week, when many stock market commentators decided that they would scare investors witless about the possibility of America dialling back its money printing activities.
I suspect some of those commentators might have been the same ones who poured scorn on Quantitative Easing (QE) when it was first mooted by the US Federal Reserve.
I vaguely recall some critics who even doubted that QE would ever work because it had failed miserably when it was tried in Japan. But now that it has worked – and probably a bit too well – they are now fretting over what might happen when the artificial stimulus is gradually withdrawn.
Sceptics to the fore
Thing is, if you had listened to these faultfinders at the outset, you would most likely have been persuaded to batten the hatches rather than participate in one of the stock market’s strongest bull-run. Over the last half decade, the Straits Times Index (SGX: ^STI) has climbed from a low of 1,456 points to a recent high of 3,454 points. That’s a gain of 137% before dividends are included.
However, the stock market’s retreat from its recent highs has brought many stock market sceptics back to the fore again. They are now concerned about what might happen when the $12 trillion of fresh money, which is equivalent to a sixth of the value of the world’s economy, is gradually withdrawn from the market.
Don’t get me wrong. I love worrywarts because that is what the stock market is all about. Without the naysayers, we would never be able to buy shares at a discount. That said we should still take, with a large pinch of salt, what these commentators have to say.
Just recently, I listened to one commentator advise caution when investing in shares. That seemed quite sensible to me. After all, we should always be careful about the companies that we invest in. But then he delivered the killer comment that almost made me choke on my morning cornflakes.
Buy when shares are high?
He explained that he would not buy shares at the current level but would instead wait until the share prices were higher.
Let’s just unpick what the expert was saying. He thinks that shares are worth buying but not until other investors start buying and push up share prices. That just doesn’t make any sense at all.
Benjamin Graham once told investors to buy shares like they would buy groceries, not like perfume. But can you imagine what would happen if this expert went shopping for groceries at the local supermarket? He would either return with the most expensive items from the shelves or nothing at all because the grocer had put on a special promotion for its customers.
On another occasion, I listened to another commentator extol the importance of stock picking in the current climate, as though this was something new. Investing has always been about picking good shares that can deliver above-average total returns over the long term.
Courage, knowledge and experience
Thing is, the stock market will, from time to time, provide opportunities for us to buy shares at a discount. These are the shares that we might have always wanted to own but, perhaps, didn’t because we had deemed them to be too expensive at the time.
So when the chance arises, you should not be afraid to step in and buy. What’s more, you don’t need to wait for others to dip their toes into the water first.
Benjamin Graham said: “Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it – even though others may hesitate or differ. You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”
Here at The Motley Fool, we like to make investing as simple as possible, but not simpler. We believe that investing in good businesses with sound long-term prospects is not difficult.
But as Warren Buffet once quipped: “There seems to be some perverse human characteristic that likes to make easy things difficult.”
Keep it simple
If you already have a solid portfolio of shares, then continue to add money to the shares that you own. If you believe that your portfolio may be too concentrated, then take advantage of stock market falls to diversify by adding some new shares to it. If you have dividends, then add the money back into your portfolio to buy more shares so you can enjoy the miracle of compounding.
But whatever you do, don’t stop adding, adding, adding money to your portfolio. And bear in mind those sage words from Benjamin Graham to buy shares like you would buy your groceries.
This article first appeared in Take Stock – Singapore.
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