Ploughing in returns in the Year of the Ox

AT the launch of our newly renovated UOB Damansara Uptown branch last weekend, I met a client whom I had become acquainted with earlier this year at a Lunar New Year dinner. Light conversation was made but we also touched on more serious matters such as the market and investment opportunities.

We had a similar discussion earlier in the year and in retrospect, we both agreed that if we had invested more, we would now be richer.

But commenting on investments based on hindsight is idle talk. It is not just about going into the market at the right time to make a huge profit; it is about being consistently invested in the market to maximise profit. I am glad that he has made some money by investing in bank-related equities, and one of his success stories was his investment in UOB shares.

I cannot help but reflect on the comments that I hear very often these days. One common grouse: “I missed the rally in the equity markets in the last few months!”

When I ask why they have not invested earlier in the year, their comment would include “Back then, the market was still uncertain about the stress test of US banks”; ”The credit situation is still bad although it may not be as severe as last year” or “Economies are contracting with unemployment increasing, etc”.

Generally, investors felt uncertain and their best bet was to have cash. But today, the very same people are also unwilling to enter the market because they believe that it has gone ahead of the real economy by too much!

Cash is proven to be king when preserving one’s wealth, but it is hardly of any good when growing one’s wealth. For that, it is more critical to have good foresight and judgment.

In an earlier article in StarBizWeek, I have shed light on investing in a logical way. Recently, I had a good personal investment experience and so, at the risk of being “naggy”, I find it necessary to reinforce the message.

My personal banker came to update me on the performance of my funds and completed my subscription for a capital-protected product. She happily told me that my investments have since turned positive, despite losing money last year.

Four out of my five investments have, in the last 12 months, started to make some profit. What happened? These investments were those that I had made slightly more than a year ago since I moved to Kuala Lumpur in October 2007. It was not because I had perfectly timed the market, but because I took my own advice and remained invested during an economic downturn!

Just as with exercise, it needs to be maintained and one does not engage in it only when some extra kilos need to be shed. Likewise, the same should be adopted when managing investment. The following is my money workout routine:

· Never put all your eggs in one basket. So simple, yet many continue to chase the single silver bullet and invariably end up getting it wrong more than getting it right. I do not and would never fall for that. The underlying principle is to manage the risks of losing money by diversifying, rather than focusing on one “hot” theme. Once this risk is managed, there is less to worry and I can sleep better at night too.

· Stay invested throughout the cycles and let the cycles work themselves out, especially when we know that good times will eventually follow after every crisis. However, this does not mean that one should blindly invest. Instead, one should continue to be exposed to the markets in a diversified way, and have a view of the long-term prospects. Throughout the tough times, I stayed invested and was able to participate fully in the rally of the last five to six months. Therefore I have no regrets, unlike those who timed and missed out on some of the best returns.

· Regularly invest regardless of economic peaks or troughs. This contributed to my mini success with investing. The core reason why my investments have brought about positive gains is also because I continued to invest even during economic downturn. By continuing to regularly engage the market, I was able to buy at a good discount.

I first started with simple monthly investment plans in the middle of last year, and have disciplined myself to put aside some money monthly and then invest in products. What I chose to invest monthly in are products that are aligned with my view of the long-term recovery of the economy:

· Energy – Despite the slow economic activities, resources are still well supported. Imagine the demand strain when economic activities pick up with the recovery. This is at least a three- to five-year view.

· China – In my mind, the growth of this Asian economic power is only in its early stages. Personally, I believe that it will be a century to be led by the likes of China and India. Emerging Asia like Indonesia, Vietnam, Malaysia and Singapore will also benefit from this boom. It is a long-term play. I am definitely bullish in this area over the next 10 to 20 years. Short-term crises and corrections are part of the norm when emerging markets grow significantly.

· Financials – Market sectors that can benefit from different market cycles are in a way more predictable than the market cycle itself. Generally, the financial sector does benefit in the early stages of economic recovery.

So, if recovery is anticipated, why not invest monthly in the financial sectors? This is also a long-term play with a time horizon of three to five years.

These money workout routines for investing do work in a logical fashion. Sometimes, when the market is falling and we advise investors to continue to invest, we get upset clients who question our expertise.

But over time, anyone can see that investing through the darkest of this current financial crisis can and do produce results. And this is even before the real economy fully recovers.

All said, staying invested and regular investing are important. But the key to real success is for us to manage our short-term emotions.

If our emotions are depressed with all the losses, we might be tempted to cut losses and walk away.

If we feel that the market is down the drain, we may not invest more. Yet, staying invested and regular investing such as through monthly investment plans are the basic money workout routines that would help us in the long term.

Tay is senior vice-president and senior head of UOB’s personal financial services division.

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