Should you time the market in 2021? (as a Singapore Investor)

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One of the most common questions I get asked on Financial Horse goes like this:

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Hi FH,

I have $xxx and I want to buy xxx stock / ETF.

Should I buy it now, or should I wait for a better entry price?

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When I first started investing, I never knew when to buy a stock.

Interest rate movements, Fed-speak, Earnings miss, moving averages, there’s just so many things to keep track of.

And when I finally decided to buy, that would be the top for the year.

Fast forward to today, I have a bit more experience in the markets, and too many lessons learnt on market timing.

I’ll try to apply it to investing in 2021, and I hope it’s useful for you.

Basics: Market Timing – What to watch out for?

There are 2 things I’ve learnt to look out for:

  • Macro climate
  • Individual stock sentiment and flow (including technicals)

Imagine this: Investing is like sailing a boat.

Macro is like the weather.

And individual stock picking is like picking the boat/sailor.

Both are important.

No matter how good a sailor you are, you still need to respect the weather.

DBS can be a fantastic stock, but if COVID hits it’s going to roll over just like every other bank.

Never ignore macro.

Only when macro is favourable, do you focus on the second part, which is individual stock sentiment and flow.  Technicals can be a proxy to understanding sentiment as well.

Technicals differ from stock to stock, so we will focus on Macro in today’s article.

What is the macro outlook in 2021?

I came across this fantastic Straits Times Article, with macro views very similar to mine (writer is a UBS Head of CIO – big shoutout to her).

To summarise:

  • Early-Stage Recovery – The world is transitioning from an early-stage recovery to a mid-stage recovery.
    • We will move from sharp rebounds and unprecedented stimulus, to still solid growth and normalizing policies.
  • Broader Bull Market – There will be volatility in financial markets going forward, but the broader trend from here is up
  • Inflation not a big concern in 2021 – Central banks have emphasized they will not raise rates at least in 2021

And UBS’s favorite plays:

  • Stick with reflation winners (construction materials, consumer services, transport, banks, metals and mining)
  • Build exposure to long term secular winners like Tech (they like small to mid-cap tech, and China tech after the sell-off)

So the recommendation is to stay invested, and pick potential winners of reopening and reflation.

So… is this an early stage bull market?

Which brings us to the million-dollar question:

Is this an early stage bull market?

Where stocks may be volatile, but the broader trend is up?

Financial Horse’s Macro Views for 2021

The funny thing is that valuations are very high for the start of a new cycle.

We’re 1 year into the recovery cycle, and DBS is already trading at 1.4x book value.

But at the same time, it’s also very hard to see central banks and governments allowing stocks to drop for a prolonged period of time in this climate.

If the S&P500 drops 50% and stays there for 12 months, I think Powell/Biden will do something to change it.

So I agree with the UBS Head.

As shared in my recent article, I think we’re on the cusp of the next phase in tech revolution – driven by AI, IOT, Electric Vehicles, Cloud computing, Blockchain technology etc. Think about how the app ecosystem changed the world in the past 10 years, and think about all the change that lies ahead of us. So tech is a long term secular play for me at this point.

There will be short term volatility as we reopen and yields go up though. I think the US 10 year may trade at 2% by the end of the year, which will mark cycle top, and that could cause market volatility as we navigate the transition to the new phase.

So I do expect tradeable opportunities / buying opportunities in the second half of 2021.

But I expect the broader trend for stocks to be up.

What about Inflation Fears?

Where I differ from the UBS CIO, is on the whole inflation / interest rates debate.

The tricky thing with inflation, is that you don’t necessarily need to have inflation.

You just need a hint of inflation, and investors may start selling bonds, causing yields to spike, and creating a market sell-off.

The tricky thing with inflation, is that it can be self-fulfilling.

And it doesn’t really matter what the Feds say on inflation, because if inflation is real, then the Feds are completely boxed in because they cannot lower interest rates in the face of inflation.

If we do see sustained inflation, the Feds will inevitably be forced to respond at some point, regardless of what they’re saying now.

But I do agree that sustained inflation is probably more of a 2022/2023 story, like I shared in last week’s article.

Should investors time the market?

So the question for retail investors like us – should you try to time the market?

The way I see it, it boils down to

(1) how much effort you are prepared to put in, and

(2) how interested are you in financial markets.

And don’t underestimate point 2.

Some people just want to spend their free time on Netflix or gaming, and not reading up on Powell’s latest speech.

That’s perfectly ok – averaging in is a perfectly viable strategy.

What I would say is this – market timing and time in the market are not mutually exclusive.

It’s perfectly fine to do both.

You can have your cake, and eat it too

Take me for example – I have a portion of my funds locked in QQQ (NASDAQ ETF), and some in DBS/UOB/Singapore REITs that I just hold long term, with zero intention of market timing. If there is a sell-off, I just add to those positions

And then I have a portion of my portfolio where anything goes – IPOs, small cap growth, market timing, call options, meme stocks, you name it.

I find this gives me the best of both worlds – I have a passive portfolio that tracks the broad market, and I have an active portfolio that lets me express my macro views, and try my hand at beating the market.

It also relieves boredom, so I don’t get tempted to mess around with the passive portion.

But hey, that’s just me.

There’s no one size fits all here, so you need to figure out what works for you.

Passive Investing via Syfe

This article is in partnership with Syfe – and I do think that they offer good options if you’re looking at passive investing.

Interestingly, they advocate a similar strategy to the one shared above, and they call it “Core-Satellite Investing”. 

The way they describe this is to think of a planet surrounded by moons.

The planet, or the core, is a passive portfolio that provides diversification and broad market exposure. Options from Syfe will be Syfe REIT+ (a REITs portfolio that tracks 20 of the largest S-REITs) and Syfe Core (all-in-one portfolios that hold stocks, bonds and gold, with a healthy allocation to China).

The moons (or satellites) can be  an active portfolio (DIY), or those that capitalise on certain themes like Syfe’s growth-focused Equity100 portfolio. 

 Here’s a sample allocation from Syfe that puts the Core-Satellite strategy in action:

You can read more about each of the portfolios below.

I do like the REIT one in particular, I find it superior to some of the REIT ETFs out there, because it removes the liquidity issues (many REIT ETFs have very poor trading liquidity, making it hard to buy/sell efficiently).    

Syfe REIT

Tracks the SGX’s iEdge S-REIT Leaders index – with 20 of the largest and most liquid S-REITs like Ascendas REIT, Mapletree Industrial Trust, CapitaLand Integrated Commercial Trust

Unlike an ETF, you’re investing directly in the REITs, so no worries about liquidity when trying to buy/sell.

Ability to turn on or off automated risk management depending on personal preference.

Read more in our review here.

Syfe Core

Broad allocation to US + China Equities, Bonds, and gold.

3 different Core portfolio types – Defensive, Balanced and growth to match your risk appetite.

Read more in our review here.     

Syfe Equity100

Pure equity portfolio that overweights growth, large-cap and low volatility. And China.

Read more in our review here.

Syfe Promo Code

If you’re keen to try it out and you’re new to Syfe, don’t forget to use the Promo Code:

FHWAIVER

To get SGD $30,000 managed FREE for 6 months. 

This works out to $75 saved in fees, so don’t forget to use it 😊

Note: This post was sponsored by Syfe. All views and opinions expressed in this post are from Financial Horse.

4 COMMENTS

  1. Hmm, I thought the Textbook way to counter inflation is to RAISE interest rates? Is there a new approach that the Fed is taking?

    QUOTE:
    And it doesn’t really matter what the Feds say on inflation, because if inflation is real, then the Feds are completely boxed in because they cannot lower interest rates in the face of inflation.

    • Yes sorry should have clarified that. The textbook answer to combat inflation is to raise rates. But the world is so long duration today that raising rates would tank the global financial system.

      With inflation, it becomes a Catch 22. Keep rates low and let inflation run away, or raise rates and tank the global financial system. Hence inflation would completely box in the Feds and limit their optionality.

        • It’s basically the idea that most of the debt out there is very long duration, and investors are very exposed to speculative growth stocks where the earnings are very far out. Hence a small increase in long term treasury yields will cause a lot of pain for all these trades.

          And compared to 10 – 20 years ago, the long duration trade is much, much more pronounced today. Financial assets may not be able to take any significant increase in the long end, and my own base case is that a 10 year in the 2% range is trouble. I think we’ll hit 2% by end of the year, but let’s see. 🙂

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