Invest in Singapore: Risks of Dollar Cost Averaging

Singapore investment: Risks of Dollar-cost-averaging
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What is dollar-cost-averaging?

Many people mistake investing in Singapore as naturally given them safety. In fact, no

matter where you invest in, you will still need to do your home work.


In shares, dollar-cost-averaging is used to lower the average cost of your

purchase.
Just as an illustration using shares: -

Jan 2009 - 1000 shares at $5.00

Feb 2009 - 1000 shares at $4.00

Mar 2009 - 1000 shares at $2.00

The average cost of the above share = ($5.00 + $4.00 + $2.00 )/ 3 = $3.67

The aim of dollar-cost-averaging is to mitigate a wrong timing of purchase. If

you purchased something at $5.00, the prices have now fallen, in order to

lower your overall average cost of purchase, you will have to buy more at

the lowered prices.


RISKS of dollar-cost-averaging

When the shares have fallen, people who blindly believe in dollar-

cost-averaging will put more money into the company whose shares have

fallen.


Then the shares fall further, he/she buys more, it falls further, he/she buys

even more. So much so that the cost of the shares is very cheap. If the

share price rebounds, the person can become very rich.


INFORMATION ASSYMMETRY

However, in many cases, there is a reason why the share prices have fallen.

We almost always have to assume that the insiders know better than we do.

It can mean that the company is seriously in trouble.

Despite years of making the market more transparent, efficient and with

timely dissemination of information, it is still the insiders and their inner circle

that knows what is going on in a company best.

Buying the shares when insiders are dumping is the easiest way for a

person to loose an entire fortune.


SO WHAT SHOULD WE DO?

The best way to do is to re-assess the company's financial fundamentals,

macro and micro economic fundamentals to establish a NEW fair value for

the company's shares and it's potential.


Once you have established that, you can then decide whether to throw more

money into the company.


If you have thrown in money in the past and it is lost, you must be able to let

go. So the key thing to do is: -

When markets rise, do not greed. (Do not rush to buy more without proper homework)

When markets fall, do not fear. (But do not become a "rambo" either)

In both cases, do your homework, then act on it. And when we say ACT on

it, we don't just mean, BUY or SELL. It could also mean do Nothing.


Some people emphasize and quote Warren Buffet, "When others are greedy, be fearful,

when others are fearful, be greedy" this is simply a contrarian style of investing. Do

not go into it blindly. Because what you didn't know is, Warren Buffet's been watching

and observing certain shares for YEARS waiting for the right moment. These shares may

have been consistently over-priced, but are nonetheless good companies. When these

shares suddenly and without reason are being dumped because people are fearful of the

general market, that is when Warren Buffet acts.


Do not use Warren Buffet's maxim when you only know half the story and didn't do your

homework. You will BET YOUR FARM and LOSE IT.


The key thing is, never take one or two simple concepts and treat it as

universal truth and apply it indiscriminately to all situations. There is no free

lunch!


Luckily physical properties have less the the problems associated with shares when

applying Dollar cost averaging.


www.PropertyBuyer.com.sg

is a Researched Focused Mortgage Advisory that helps individuals

refinance or obtain the best fit home loans. We do not simply emphasize

cheap rates, but rather focus on a risk versus savings approach.

You can approach us to evaluate refinancing of your home loan. The service

is free to you as banks pay us separately. You can click on "About us" to

know more about us.

You have nothing to lose and everything to gain.

www.PropertyBuyer.com.sg

also focuses on helping property buyers get the right property investment by checking

checking and ensuring a fair valuation so that they do not overpay or get excited when

an agent tells them the property is hotly in demand.

Find the right home loan package that fits the needs of the home property buyer,

process the loan till approval.


When the loan is finally approved, www.PropertyBUYER.com.sg helps you to check the

letter of offer to make sure the terms are exactly as agreed prior to the offer and

spot major mistakes and omissions.

(Some home owners were promised some terms and pricing, but when the offer came, there were some mismatch. One of the home owners signed on it and only to realize months later that instead of a No-lock in period, he was locked-in for 3 years, with a penalty of 1.5% on FULL redemption. His property was 700k and his loan was only 400k. In case he were to get an offer to sell his property within 3 years, he would incur a $6,000 loss)


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Singapore Investment: Understand your irrational investment behaviour

Singapore Investment: Understand your own irrational investment behaviour.

If you think you are rational every time you make a decision? You cannot be more wrong. The brain (specifically out brain) fools us most of the time. And almost predictably, like a computer program, our human decision making follows a certain pattern.

We think we are in control, but often the choices are made for us, without us even knowing it.

For example, you offer your child Milk or water, most child will likely choose Milk. But if you ask your child what he/she wants to drink, you are in trouble... It will end up with... "Waaa I want Cola, I want grape juice....!!!! I want the super duper power ranger drink because it gives the special doll."

Similarly, in finance and investments, you choices are often skewed by your brain.

You will also understand why people flock in herds, because people feel safer. Therefore in order to invest well, it is not about intelligence, it is also about temperament. Why some are more rational than the others? It's all got to do with how the brain is wired and how much of certain chemical signals we have in our brain that controls the Fight or flight response.

Singapore: Growth Investing

Simple enough... But how do they spot companies with off balance sheet risks? How do they spot companies whose treasury engages is swaps?

But anyway, we think it's good to know some of the parameters. Should you get the book?

Its up to you, but the book will probably try to sell you the benefit of the software so you will subscribe to it. Some of these parameters can help you make less mistakes, but you cannot invest in a company looking at such signals alone.

These type of investing styles are "quants", which means they depend on some parameters, algorithms and formulae to spot price trends and profit from these trends. However quants tend to miscalculate or zero rate risks that are highly improbable.

Highly improbable events are not impossible events. When the improbably happens, quants fall flat on the face.

Financial Channel