Today is the last day of 2017. People from all over the world will be celebrating the end of 2017 and the coming of the first day of 2018 at midnight today.
Time flies, those who have passed mid life would feel frightened because we are getting older. On the other hand, however, those who have children would feel satisfied because our children are getting more independent and mature.
As investors, in whatever our age may be, regardless whether we have children, we can also feel satisfied because our capitals have grown if you are investing with unit trust or mutual fund. We have missed out something but yet we have gained another. We are not heading toward despair or helpless as the day passes by but rather towards a hopeful future. We are heading towards a day of financial freedom where we can be free to do whatever we feel comfortable and enjoyable.
Market Volatility: A Good Test of Investment Success
2017 has been a tremendous year for investment. I would like to give a big congratulation for those who have invested. There was no major risk or high volatility throughout the year. If you are new to investment, just starting this year, however, it is not so good for you. Your financial gain came too easy. True profitability of an investor doesn’t count on any single period of time. It would be more reliable to count your success after you have gone through the test of market volatility.
There was a time when I’ve just learned how to do Future Option trading; I saw my capital grew almost double after 5 months. I was so thrill at that time and began to dream of the future that can behold me. However, deep inside me, I realized it could not be real because I have not yet passed the test of time via volatile market. True enough, after that, market went mad and crazy, all the gain Mr Market gave me he had slowly eaten it back. Before he took back everything, I said good bye to Futures Market.
For those who have seen your capital grew this year, there will be a temptation for you to add more cash into your investment. This is the most common tendency for novice investors. I would urge you refrain doing that. Because market does not repeat itself according to what has happened in the past.
If you have gained large profit this year, it is a good time for you to take your capital off your table instead of adding more to it. If you take a look at the graph A, you will realize what you have experienced in 2017 has nothing to compare in the past 2 years, 2016 and 2015 in terms of volatility. The past 2 years were really good training years for all investors. For what you have lost in that 2 years, you might have possibly recovered in 2017 if you have persisted on.
Investment in 2018
When we enter into 2018, we have to take on new strategy to tackle what is to come. I personally believe 2018 will be a year full of uncertainties. Volatility is going to be high and unpredictability is going to be a norm. As a reason, capital protection is the first foremost important concern for all investors. As I can see dark clouds are forming from the horizon (see my article on Investment Outlook for 2018). There would be possible deadly storm, or hurricane suddenly appears from nowhere.
Whenever there is quite moment, storm might come suddenly. That’s what we normally called quiet moment before the storm. When quiet moment comes during the Bull Run, investors by the sideline are tempted to enter the race; those who are enjoying profits easily will be tempted to top up their capitals. When the storm appears, there the lecture lesson begins.
This is the most common experience, but the hardest lesson to learn even for veteran investors is the time period waiting between quiet moment and the storm. We have been hearing the crying wolf voices (Black Swan is coming) ever since 2012. And I also noticed veteran investors hold their cash without investment but they have returned to the market eventually after long waiting period. Then they have incurred losses even beyond money can count.
Stay Invested with Protected Strategy
Therefore, when we consider the possible coming of the next global market crash, total cash protection is probably not a good idea. If we aim to achieve that, we will risk ourselves getting out of the market too early. When the Black Swan delays coming not until 2020 like what Stanley Morgan predicted, we would feel miserable. The opportune time loss is the greatest loss of all. If we aim for lesser losses when it comes would possibly be a noble objective.
In times like this, when we enter 2018, though investment outlook is not that promising, but yet we do not know for certain whether the Black Swan will appear, it would be probably a better idea to stay invested but with protected position. When the Black Swan appears, the happiest person would be the one who have the least losses, not without any losses.
The purpose of defensive investment strategy does not necessarily mean to reduce losses, but may also mean to earn more. If we have a strategic approach to manage our portfolio tactfully, when markets go through a volatile period, we can even gain larger profit. This is possibly something we can all learn together by 2018.
Happy investing!
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