Saturday, July 16, 2011

Difficulty of arriving on time

Recently, I had a class which I arrived earlier than the scheduled time. I was early by 10 mins but the parent questioned me on why I was so early. In the end, the parent told me a whole lot of story about how the child had to rush back from school and had to run back and that it was so worrying and all that. After all that, she reminded me to try my very best to be on time.



Maybe that parent had been too used to driving, because if she had taken public transport (like I do), the frequency that the bus arrives is hardly something that can be controlled by me. If I didn't come before time, I'll most likely arrive later than scheduled. Long ago, I had been late 15 mins before (to the same parent), but she called me and asked me where I was and that the child was waiting for me. Seriously, some people are just hard to please. I think it's easier to be late and easier to be early but it had to take a lot of luck to arrive just on time. A lot of factors had to be just right in order to arrive at the appointed time.





I think the same thing goes for people in the market who wants to get the peak or the trough of a market movement. Aiming for the bottom-est price just before it reverses is a fool's game. You can aim for the region but if you really get the lowest price, it's more a matter of luck than skill. As you narrow down the time frame, the price movement gets more and more random. Likewise, it's a fool's game to aim for the peak before selling. You can sell a little earlier or a little later but to hit the highest price before reversal, you need lady fortune on your side. This doesn't mean that TA fails - it just shows the limitation of what timing the market realistically can be.



Psychologically, I think it's better to sell earlier and buy earlier, since we cannot sell at the peak and buy at the trough consistently. Selling earlier means that you'll always see the price go up higher after you had sold the stock. Selling later means that you'll see the price go downhill after hitting a maximum. Chances are that after you've seen how high the stock had risen, you've already anchored that particular price in your mind. You'll be less reluctant to sell and you'll end up hoping that the price will still rise up to that particular level. I don't like that and I had several experiences of me ending up turning a profitable positions into a neutral or losing position. Likewise, buying earlier means that you'll see the price go down lower after your purchase, but I feel that this beats seeing the price goes up higher after hitting the lowest price, anchoring that particular price in your mind and missing the whole boat altogether while waiting for the price to come down to that level again.



*This article is contributed to IM$avvy financial portal, which is managed by Central Provident Fund Board and supported by MoneySense. This site has a noble aim of promoting financial literacy to the general population.

10 comments :

Createwealth8888 said...

"think it's better to sell earlier and buy earlier"

I thought most of us and if not all of us always do that - "sell earlier and buy earlier". No meh? LOL

Temperament said...

Hi LP,

No lah!
Somehow, sometimefor a particular stock greed has overtaken us rather then fear.
But it's very true it's best for us to sell too early because if you can escape the Bear Markets on every cycle, you will be doing very well already; not need to sell at or almost at the peak of the Bull Market.

la papillion said...

Bro8888,

No lah, I think I've seen people sitting through a high price, after which it fell and that person is queuing to sell at that anchored high price after that. It just keeps falling until the person cannot take it anymore and sell it at a much lower price or cut loss.

You've not seen this kind of person before?

Temperament,

I agree...greed makes us hold longer while fear makes us sell earlier. Hmm, come to think of this, do I mean that it's better to be fearful than greedy?

Food for thought.

Singapore Man Of Leisure said...

Hello LP,

Interesting choice of word about "price anchors"! Mastery over our "Mind" is something I am struggling always.

We see a stock we own hit a 52 weeks high, we are "stuck" trying to sell at this "price anchor" even though the price is slipping... Mentally we feel it's a "loss" even though we can still get out with profit at a lower selling price!

The reverse is true when we missed the 52 weeks low. We feel we have "over-paid" if buy on the way up... Never mind we may miss the boat completely in the process by forever hoping the price we correct back to the 52 weeks low.

Hah! You got me. Been there, done it!

Patty said...

Perhaps a lesson on the differences between "on time" and "in time" is in order?

Ee Chuan said...
This comment has been removed by the author.
PanzerGrenadier said...

Hi LP

I still suffer buyers/sellers remorse, i.e. when buy price go lower, feel sianz. When sell, price go higher, feels lagi sianz.

So now I console myself realised profits is always better than realised losses when the price of the stock I just sold goes up.

When I buy, I tend to be clearer now then before on whether it's a speculative punt or long-term investment and manage my expectations accordingly :-)

Regarding that parent, I guess the trick is to reach earlier but hang around the void deck or somewhere to read your eBooks or listen to music and then go up on the dot.

Some people are hard to please. :-)

Noobz said...

terforwell i believe no one has such precision in market timing.

even though one couldn't achieve precision in selling/buyin, one should at least improve on it....

I am still pretty struck at where I began...

la papillion said...

Hi SMOL,

Haha, price anchoring is a psychological reason behind support and resistance too :)

I've also been there and done it...it's hard not to have done it, haha!

Hi Patty,

Haha, they obviously think that pple can arrive on time, whereas I believe that as long as we arrive in time, it's good enough :)

I believe that the person doing the travelling should be given a larger allowance for meeting appointment. That's just me lah...

la papillion said...

Hi PG,

Me too...still have buyer seller remorse, but much controlled compared to the earlier days. It won't go away, I suspect, so it's a matter of managing it.

No lah, I won't hang around. It's a waste of time, haha :) The parent can complain all she likes, I'd just carry on doing what I did. Unless the child complains that more time is needed to arrive, I won't change it. I realised there's a different expectations between child and parents. If I have to choose, it'll be the child's side :)

Hi noobz,

Hard to improve it lah, since the conditions each time is different and there's so much uncertainty regarding the occurrence of both the peak and trough. I would say it's better to focus your energy on other aspects of trading rather than picking the utmost peak and trough.