Base on above chart , the market looks like " casino's Big vs Small " with 50/50% chance on daily basis ... but if we invest in much longer time horizon e.g over 20 years rolling time frame , our return will be 100 % in positive. That's explained the quote from Benjamin Graham .

"Time " is the key factors in making the " compounding effect " miracle.  Now look at below chart , the compounding impact will be much greater at the end of longer period ... World Greatest investor , Warren Buffett got his first Billion at age of 56 but look at the subsequent  years on how the compounding effect kick in that make his multi billions empire .

Stretch your investment horizon and let the "compounding effect " take place eventually .

Compounding effect : Start earlier 


  A） Invest $10 K per year from year 1-10 and stop subsequently to let the money compounded each  year at 8% p.a. His total invested principal = $100,000.

We can't really see any pattern in short term but in the long run , the stock market activities is very much related to "economic value of the underlying business / demographic / technology enhancement etc .. Stock market tends to move in "upward " direction in the long run.

One may argue that we do not have such long time horizon in our investment life cycle . Yes, it is true , but please refer to my earlier blog post , we may try to take a look at the valuation of market at 20-30 years time frame and do a " regression line " , tr to do the "market timing" base on "market valuation vs long term "mean regression " .

Easy said than done , good valuation only appear when there is crisis . But during crisis , the " fear factor " will rule and our emotional ( another element in my 6 factors strategy ) will determine our success in such tough situation.  One will need the courage to punch the "buy " button in such crisis time.

As I have repeatedly highlighted that volatility not equal to risk and there will be opportunities during crisis. " Risk " is not knowing what we are buying or investing in and subsequent lost of capital permanently.

< Monthly STI Index updated till 29 Jul 2016>

I am using this chart to judge the market valuation in long run and do the re-balancing of my portfolio from time to time, either moving more into equity or keeping more cash （ or buying short duration bond). This is quite similar to " Chan's Channel " developed by Dr Chan Yan Chong ( an Adjunct Prof at City University of Hong Kong ).

Base on this chart , market valuation seems not at "dirt cheap " or crisis level ,but also not over value since it is at below "regression mean " point. Statistically , there is still more than 50% chance to out-perform the market at current valuation , if we hold it for much longer time.  At green line level , the "odd" of winning will increase to approximate 68% ,, while the orange line will give one to have winning odd of more than 95%.

Remember that stock market is about " probability " not " certainty " .. as I have quoted in my previous post . Also , please take note that stock market could be in more " irrational mood " or moving sideways much longer time than we thought.  Therefore , holding 100% in cash and wait for the market to correct may not be wise in long run.

Please refer to below link for more detail :

How about you ? What is the factors you use to decide when to buy or re-balancing your portfolio ?

Please stay tuned for part 2 and part 3...

Cheers !