On... Searching for Dry Land
Recently the ASX200 entered into a bear market and then reversed into a bull market shortly. Was that a true rebound or a bear market rally?
As posted in the last blog, since we don't know the reason for entering a bear market, we sure will not know the reason for entering a bull market. If you don't know the reason, then you can't time it as there is no reliable signal to use (Well, some people can pick tops and bottoms, but not me).
If I can't determine the reason for the start of a bull market, and I can't time the bottom, how do I know when to start investing again? I was lucky to go to a high cash level in February, but when do I start to deploy that cash? I have already missed the rally in April. Will this rally go on or will it fizzle out and retest the lows?
Somehow, I'm suddenly reminded of the story of Noah's ark. In the story, GOD sent a flood to destroy most of the Earth except for Noah and his family (and some animals). For forty days and forty nights heavy rain poured down on the Earth and caused the Earth to be flooded. After the flood receded, Noah did not know when the water diminished and so he used a dove to test. He would send out a dove, and if the Earth is still wet, the dove would return. And eventually, the dove would not come back when the Earth was dry.
Noah used trial and error to search for dry land. And when you have no idea to predict or forecast, trial and error seems like a reasonable approach.
Many analyst think that we will see another crash and that sounds reasonable given the current economic situation. However, the market is not the economy and is forward looking (I.e. 2008). I personally have no idea when the bear market ends, therefore just as Noah did - I will resort to trial and error.
As posted in the last blog, since we don't know the reason for entering a bear market, we sure will not know the reason for entering a bull market. If you don't know the reason, then you can't time it as there is no reliable signal to use (Well, some people can pick tops and bottoms, but not me).
If I can't determine the reason for the start of a bull market, and I can't time the bottom, how do I know when to start investing again? I was lucky to go to a high cash level in February, but when do I start to deploy that cash? I have already missed the rally in April. Will this rally go on or will it fizzle out and retest the lows?
Somehow, I'm suddenly reminded of the story of Noah's ark. In the story, GOD sent a flood to destroy most of the Earth except for Noah and his family (and some animals). For forty days and forty nights heavy rain poured down on the Earth and caused the Earth to be flooded. After the flood receded, Noah did not know when the water diminished and so he used a dove to test. He would send out a dove, and if the Earth is still wet, the dove would return. And eventually, the dove would not come back when the Earth was dry.
Noah used trial and error to search for dry land. And when you have no idea to predict or forecast, trial and error seems like a reasonable approach.
Many analyst think that we will see another crash and that sounds reasonable given the current economic situation. However, the market is not the economy and is forward looking (I.e. 2008). I personally have no idea when the bear market ends, therefore just as Noah did - I will resort to trial and error.
following your analogy of using a dove, does that mean just buying one stock of every company to test if there is any dry land? XD
ReplyDeleteDiversification is the only free lunch on Wall Street
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