KLCI 2007 

If like me, you have been a little bewildered and perplexed by the helluva ride that the KLCI has taken us over the past year, then maybe it helps to try to review the year in passing to try to come up with some strategies for investing in these highly uncertain times.

I have a modest stock portfolio of mostly blue chips that I’ve been accumulating since 2004. After 2 + years of directionless (“sideways”) trading, it felt almost like a lightning bolt to the system when sometime in the 2nd half of 2006 the stock market started to gain steam. The KL composite index (or the KLCI which comprises the 100 major stock counters traded on the Malaysian stock exchange) was hovering around its 2006 low of 886 points in June 2006 after the selldown of global markets. It then began climbing steadily and surely to breach 1,000 points by Nov 7. By the 2007 new year, it had crossed 1,100 points. It continued upwards to hit 1,283 points in late Feb before giving us (some of us, anyway) a mini-scare by retreating to 1,111 on Mar 5, in the wake of yet another regional and global market sell-down.

However, this was only temporary. Regional markets soon rallied and the Dow Jones index gained 8.5% in 2Q07 to reach a record high of 13,757 points. This combined with positive news on the domestic front (abolishment of RPGT, etc) fueled the KLCI to hit an ALL-TIME HIGH of 1,392 points by Jul 24.

Yeehaaaw! That’s a 57% gain from the beginning of my story!

For those of you out there who were riding with it (cue: theme from Bonanza 🙂 ), it has sure been an exhilarating time hasn’t it? For me, it has been almost surreal.  Public Bank went from being (forever) around RM6 in the past 2-3 years to RM10+. Maybulk pretty much doubled. Same goes for Genting and Resorts. Needless to say, Bursa (the stock) went ape also…although unfortunately I didn’t have the foresight to invest so couldn’t join THAT party. 😦

This was sometime back in June this year…when many of us I’m sure (me included) would have decided to take some profit. And punters were saying the market would hit 1,500 by year end. So there was a buying frenzy fueled by the herd. Except for whatever reason, I froze and decided that I would sit tight and do nothing.

(Well, almost nothing – I did throw a little money into PruSmallCap – the Prudential unit trust fund that invests in small cap (less than RM1.25 billion in market capitalization) counters on Bursa…but only because a friend was selling it.)

The thing is, how do you know (unless you have a crystal ball which I don’t) whether the market has peaked and is about to take a turn for the worse? I get this question a lot on this blog…and usually I’m able to give the standard rehearsed (but heartfelt :)) answer which is: you don’t time the market…you invest regularly and consistently (most of you know about Dollar Cost Averaging right?) and you fix your target returns. You practise asset allocation ie allocate a fixed % of your wealth into fixed income securities and stocks/equity funds. Once (or twice) a year, you rebalance your portfolio and make sure your asset allocation ratios are maintained. That’s it. You don’t bother about whether the market is up or down.

The problem is: when you see the market making the spectacular run as it has and everyone’s talking about it, it’s really really hard not to get sucked in and get caught in the “buy this” and “sell that” fever. I admit I often found myself  thinking : what should I buy – what should I buy. Whereas, Lil Mom ( my dear old mom who’s lived through much more mayhem in the stock markets than I have) was asking: should I sell – should I sell? So amidst, all this noise, and being catastrophically busy at work, and with no sound plan to do anything – I ended up staying put and doing nothing – neither buying nor selling…but still sticking of course to my monthly fixed amount investment in mutual funds.

Which is why, when the market suffered another mini meltdown in August – it busted all the way down to 1,172 on Aug 17. I was able to remain fairly cool. “Whatever!!” 🙂 I said to Lil Mom when she called me harriedly about news of doom and gloom.

And now it’s gone back up again.  It was 1,384  just before Raya and it closed at 1,370 last Friday. Whatever!! You can practise this “whatever” style of investing in equities if you practise DCA or dollar-cost averaging. Just get a direct debit instruction from your bank to the mutual fund company and fix an amount (RM100, 300, 500, 1,000 – it’s all up to you) to invest every month. Rain or shine, boom or bust, your money goes in every month on the 1st or 8th or whatever date you select. When the market is up, your fixed sum buys fewer units. When it is down, you get more units. Over time, it averages out nicely so that you ultimately stand a better chance of making a consistent return. And without breaking a sweat – unlike those poor souls out there – “should I buy”, “should I sell”, “what should I buy” &(*!@. Answer: whatever!!! Two thumbs up to those of you already on the DCA bandwagon! What a great strategy!