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The Value of Patience

31 Jul 2013 
SOURCE: Wong Sui Jau
The US market is back to testing all time highs. Only Asian markets have not quite rebounded, but certainly, there are clear signs that markets here in Asia are also bouncing back from the July corrections. I put in some more monies this month into my portfolio as follows:

LionGlobal Korea Fund - $2,500
Aberdeen Asia Smaller Cap - $5,000
Fidelity America SGD Hedged -$2,500
Total: $10,000

This was in keeping with my view that Asian markets have lagged developed markets. At the same time, I also added to US because I was keeping increasingly overweight Asia and needed to top up on other regions so that my portfolio would not become overwhelmingly lopsided towards Asian equities.

As I was looking at my portfolio, I noticed that with the recovery in markets, both here and in the US, there has been a significant bounce back in my portfolio. At the same time, some of the best performers in the portfolio were from position which I have stayed in for some time, and not necessarily those which I heavily added into this year.

A good example of this is US equities. My investment in the Fidelity America Fund SGD Hedged has earned a 19.2% profit so far while the Legg Mason Royce US Small Cap Opportunity Fund has made me a profit of 31.2%. Yet, these were not positions that I was adding to this year (other than a small amount recently into Fidelity America Fund). These were positions which I have been increasing my investment back from two to three years ago. Looking back at my transaction history, I started to buy the Legg Mason Royce US Small Cap Opportunity Fund as early as January 2011, and I kept adding to it through 2011 and 2012. Interestingly, when the US market really took off at the start of this year, I have not touched the fund at all; instead I opted to just let it rise in value.

The nature of unit trusts is that they tend to be more suited to medium to longer term investments. And our investment philosophy here also emphasises that. I get asked quite frequently whether the market might be up within 3 months, or even the next week! However, I never ever invest based on that time horizon. It is usually better to take at least a two to three year view because sometimes, a short term event may happen that could easily throw markets off track temporarily. The slightly longer term nature of unit trust investing also means that unlike stocks, you may not get the satisfaction of seeing your investment bear fruit immediately.

When I was adding to my US equity funds back in 2011 and 2012, I did not have the satisfaction of seeing the market immediately go into a bull run. Nor did I expect that to happen either. There were even periods of volatility in 2011 and 2012, and in the weeks leading up to the US fiscal cliff at the end of last year, there might even have been the temptation to sell out of US. However, I stuck to my guns for US because I believed it was recovering and the valuations of the market were very compelling. The reward for that patience only came about this year, as the US market has been one of the strongest performers this year.

This drives home the point that it is important to be patient when we are talking about unit trust investing, especially if you are following the articles that we display on our website. We are never talking about a three-month view when we say we like or dislike a particular market. Take gold for instance. We were negative on gold as early as 2010. And at first, it might have seemed stupid, because gold continued to keep on rising. However, it did not do well last year and it has been hit badly this year. Sometimes, investing is not just about the investments that made you money; it is also about avoiding the investments that would have lost you money as well. The good fund managers do not just outperform when there is a strong upward market. In fact, some very good fund managers outperformed their peers over the long term because they did much better during the down markets, meaning they lost much less money when markets crashed.

There will always be volatility in markets, and every year there will be a best performing market and a worst performing one. However, I feel that it is better to focus on longer than a six month or even a one year time frame when we are talking about unit trust investing. Patience is a very important virtue when we are talking about unit trust investing, even though sometimes, the gyrations in markets seem to imply that a lot of money can be made quickly in a short period of time. The problem is that short term market movements are almost impossible to predict, and honestly, I do not even try. I adopt the longer view and focus more on fundamentals and believe that even if emotions and herd mentality causes the markets to move contrary to fundamentals over the short term, over the course of a longer period of time, those fundamentals will still be more important.

This is why I continue to be overweight equities as well at this point. Equity markets are still relatively attractive in terms of valuations. I am also adding to North Asian markets like China and Korea even though these markets have been relatively disappointing over the last 2 years. Some of the biggest upside I have experienced came from buying into a market when it has slumped for 2 to 3 years, or after a big crash. This is why I tend to want to add more during or after a market crash or correction as opposed to during a bull run. I find that the worse my portfolio looks, during or after a market crash, the bigger the buying opportunity. The key thing is to have patience. Just like investing in the US equity funds, and adding to equity funds in 2011. Things may not always pan out immediately after you have made an investment. But if you do stay on top of things, and understand that the reasons and fundamentals for buying into that investment has not changed, then all that Is left to do is to be patient. It may not make for much excitement in the short term, but I do get some satisfaction when these investments eventually show their worth two to three years down the road.

Message from Admin: The information contained in the above article represents the blogger’s personal views. The information is for general reading and should not be taken as financial advice.

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