For background inspiration of this blog post, see this – Everything You Ever Need To Know About Investing. Which is a rather appropriate, clicky-baity blog post title, if you ask me! I might have written something like ..
Decades Of Investing And He Finally Understands One Thing!
Not bad huh? 😉
Bonus blog post – Buy High Sell Low, Not Buy Low Sell High (BULLy the BEAR)
You might think that it is weird that an index investor would agree with “Buy Low, Sell High”. Shouldn’t our mantra be buy and hold for the long term? What happened to getting market returns?
There are, after all, plenty of investment strategies to choose from. My understanding of index investing has led me down the path of Bogleheads 3-Fund Portfolio but setting it up isn’t the tough part. Convincing myself that it works is what took the longest time.
One Thing About Index Investing That Will SHOCK You
OK OK, not so dramatic but I do have one basic assumption – the market is (usually) cyclical in nature with a long-term upward trend. If not, why else would you invest in indexes if you don’t expect it to go up in the long term?
But by maintaining an index portfolio and following re-balancing rules, it inherently forces me to “buy low and sell high”. For the rest, I shall just rinse and repeat what I posted previously:
Ideally, we would all like to buy low and sell high. Now, that doesn’t always happen. Some of us who lived through the dot-com bust have heard of the direct opposite happening – people were dumping their stocks at a fraction of what they paid for due to fear of losing everything.
My initial dilemma was that it is difficult to determine when exactly is prices considered high or low since we only have historical data to compare to. I later found out that P/E ratio would be a useful gauge of the “expensiveness” of the entire market, but let’s put that aside for the moment.
Buy Low(er), And Sell high(er)
What if we could benchmark it against something? My search for an answer led me to Bogleheads. The solution is remarkably simple. Instead of going 100% equities, we add a bond component (in my case, a bond ETF) into the mix. By nature, equities and bonds does not have a direct and obvious correlation to one another. Don’t worry, perfection is not required. We don’t need a negative correlation. So now, what ever happens to our index, we can compare it with respect to our bonds.
No matter what allocation you use (it can be 90/10 or 70/30 etc) you determine a re-balancing threshold or trigger. Perhaps you want to do so when the allocation deviates by 5%. Or every half-yearly. Or like what Andrew Hallam likes to say, re-balance on your birthday.
I like how this automates the buy/sell behaviour by taking profits when equities goes up with respect to bonds, and investing when equities goes down. Buy low(er), and sell high(er) – at little chunks.
For the full post, you can click here.
TURTLE INVESTOR ANNUAL GIVEAWAY 2016
Meanwhile, the Turtle Investor Annual Giveaway 2016 is now ‘live’! All you need to do is to subscribe to my blog (scroll down) to be eligible for this and all future giveaways 🙂 See past winners here, here, here and here. All giveaways are sponsored by your fellow readers who generated the necessary ad revenue to keep this contest running.
I’ve skipped book #2 and #3 and selected book #4 of Show Me The Money series by Teh Hooi Ling, which I felt was an excellent read. After blogging for so long, many times I realized that the journey is much more than just investing. One free copy is available for a lucky reader!
Aptly titled “Ideas and Philosophies to Navigate Life and the Markets”, I’m sure it will be a fantastic addition to your bookshelf. Guess who I found on the back-cover? Rolf Suey! Famous liao!
More Than Index Investing
Be notified of new blog posts right from your inbox!
All you need to do is subscribe 😉