What is your biggest fear of investing? Are you afraid of
- Choosing the wrong investment and losing money?
- Missing the opportunities which was right in front of you?
Those use to be my struggles too, until I found a systematic way to invest.
To be fair, there are many ways of investing which could work for you, but momentum investing is one of the simplest and most practical strategies which you can use to build your wealth quickly.
The gist of momentum investing is to follow where the crowd go. This seems to contradict what many “financial experts” advocate and definitely a big no-no for value investors. But that is what we human naturally do. Therefore, it is one of the easier ways.
If you adopt momentum investing strategy, the toughest thing is to identify the market trends. In this article, I will help you understand one simple way to identify the stock market trends. Let’s start with the basics of momentum investing.
Recognize momentum investing is not speculating
You may have heard of momentum trading and associate it with high risk and speculation of the markets, but momentum investing is not the same. The idea is not to trade in and out and try to profit from the market movement, but you merely want to on the right side.
How do you find the best chicken rice in a hawker center?
You probably have a better chance if you join the one with the longest queue. On the other hand, if you are a value investor, you are essentially trying to identify the best chicken rice stall which has yet been discovered by other people. (Highlight unlikely in Singapore :))
Being contrarian and still reap gains is theoretically possible but you must ask yourself whether you have the guts, time and money to do the work.
Reply on a system to identify the market trend
Many people, me included, start investing by randomly following the news or stock tips and trying to predict the market direction. But if you have tried that before, you know it hardly works.
Stock market is a chaotic and confusing world. One day it is full of good news and optimisms and the next day the same market can plunge and wipe out your wealth.
A system, no matter which one you use, can help you filter down the noises. It is like the GPS in your car to keep you on track.
If your purpose of investing is for your retirement, you have more to lose if you do not have a system. This is because you have a very long time horizon and anything (especially the bad things) can happen along the way.
If anything can go wrong, it will. – Murphy’s Law
When you invest your retirement savings and you lose control, you will suffer some irrevocable losses. It is not only the financial loss but time loss too. Because time has only one direction, once it is lost, it is permanent.
Position yourself without knowing the future
We all know we cannot predict the future, but we often lie to ourselves as if we have a crystal ball.
He who predicts the future lies, even if he tells the truth. – Arab Proverb
Think about the lies we create for ourselves every day.
- Today is going to be a rainy day
- The government will pull out the property cooling measures before election
- The stock market is going to rebound
- The price of stock A will go to $2.35
- I am smarter than 90% of the investors if I just buy and hold some low cost ETFs
If we tell enough lies to ourselves, some of them will become true eventually by sheer randomness. But you will be sure that there are enough lies which do not come true and hurt your own pockets.
A good system will help you position yourself without knowing the future, it will help you make money without taking unnecessary risks and achieve asymmetrical returns.
Savvy investors do not predict the unknown future, neither do they manipulate the historical data to justify their past mistakes. Rather, they take actions and manage the risks with current and available information. – Ivan Guan
The way I look at investment may be very different from what you used to hear. I am not going to “predict” whether there will be interest rate hike, whether Singapore economy will do well or even throw some random numbers of which level Straits Times index will go to.
I just want to follow where the smart money is going, and one way of doing this is to track the money flow.
Identify the market trends by following the money flow
I always believe that people who succeeded financially have very different mindsets comparing to people who did not. They also leverage on resources which man on the street can hardly imagine.
For most of us, if we can acquire 10% information and resources of what the ultra rich have, we will be dam lucky.
You can choose to discard this and continue to believe your retirement planning is settled by just topping up $100 a month into a STI ETF, but the truth speaks by itself.
The rich may hold ETFs, but they do not get rich by holding ETFs. – Ivan Guan
Let me give you an example of how to look at money flow.
Many people claim the crash of stock market at the beginning of the year caught investors off guard.
Is that true?
We can unveil the secrets by the chart below. This chart shows where the $24 trillion institutional investment funds put their money.
Big money flew out of stocks since the end of last year
The dark blue line shows that money was already flowing out stocks globally before the January stock market crash and it has continued for half a year. What were retail investors doing? They either held their stocks as at “paper loss” or continued buying when the institutions were dumping their holdings.
Bond inflows surpassed stocks
The light blue line shows that the money was poured into bonds since February this year and the trend is continuing.
So now you have a choice, would you want to get on the train which already started running, or you want to stand right in front of it?
The Momentum System I personally use to catch the market trends
If you are a reader of this blog, you know I created a Global Momentum Compass (GMC). It was built on two core investment philosophies.
- You should always aim to achieve asymmetrical returns
- You must have a rigorous system to manage your risk exposure
- US stocks
- Asia Ex-Japan Stocks
- Global High Yield Bonds
- Real Estate Investment Trusts
This could sound counter intuitive at that time because many people are betting a swift recovery of Singapore stocks markets. And as you know now, those who has been chasing the market has been burned badly.
You may not be happy when your investment is not making a lot of money, but I am sure you will be extremely unhappy if you lose just a little bit. – Ivan Guan
Let’s compare the performance of GMC portfolio (blue line) and Singapore stock markets ETF (red line) below, which one would you prefer that you have invested?
Get started to follow the market trends
Following the money flow is one simple way of looking at the market trends, but the practical aspect is not so simple.
At the same time, you cannot just divide the investment markets into stocks and bonds because the definition of an investment market can be very misleading.
If you find all these are too overwhelming, let me help you get started.
What I have done is to help you deconstruct the markets into different asset classes. At the beginning of every month I will publish how I allocate money for my own investments.
Sorry but I have to be a bit choosy…
I am not here to argue what the best investment strategy is, neither do I think my investment philosophy is always suitable for you. Being in financial advisory industry for more than 10 years and I have come to the conclusion that I simply cannot help everybody.
Therefore, I offer a free non-obligatory investment discovery meeting. In this 30-minute meeting, we will
- Discuss the investment challenge you face
- Evaluate how to reposition your existing investment portfolio
- Understand your expectations of getting a professional help.
- Explain my conditions to accept you as a client
- Decide if we can work together to help you achieve your financial goals.
If this is for you, simply submit your request below.