THE GAME PLAN: BUY TO SELL

Dedicated to my ex-colleague:

Recently I bumped into an ex-colleague who remarked how his investment in a list of unit trust funds has caused him an unrealised loss of RM100,000 on top of losses suffered at the stock market. Yes I do invest a small sum of money in the unit trust fund and my scrutiny today reveals a depreciation of 38% over a year.

Many people are losing a lot of money in this bear market. This friend is one of the many who is sitting on an enormous loss on his portfolio of stocks & unit trust funds and are confused at what he should do.

He started accumulating stocks and mutual funds units last year on the advice of some financial consultant. He had hope that the advice of "BUY & HOLD" would bear fruit but is now aware of the futility that comes with such, in a down-trodden market.

It's not a small amount. Assuming RM100,000 loss = 38%, he must have invested RM260,000 in unit trust funds alone. I don't know how much he is invested in stocks.

I don't know if it's better to to swap trust fund units to stock shares or vice versa. Or to relocate to better performing sectors, or ultra-depressed equities in the stock markets in the hope of a quicker recovery and jump in their price. In this bear market, all mutual funds prices, virtually every stock in all sectors are in decline.

• What I do know is that monetary loss is part of the game. What I do know is that when he does sell at a loss, he does not have to reinvest immediately for fear of missing out of a rally.
  
• What I do know is that unrealised loss (paper loss) is same loss as the loss of money in your hand or in your account. The monetary value is the same, in your trust fund, stocks or cash or account.
• What I do know is to be in cash at the moment. I begin selling since mid-May, took profits on some positions and cut losses in some. Since then I did many intraday and contra trades that yielded little. This is a hostile market that respects no fundamental or technical analysis but thrives on volatility.
  
• Stay away from investing (BUY & HOLD) strategy in this uncertain market. Stay away from the invisible market forces at work at the moment that seek only to confuse you. If you must, trade intraday, contra and cut losses early before it turn huge.
  
• What I do know is to sit on cash. Cash is going to be the best performer of the year. It's going to allow you to buy stocks, units at the near of a fresh bull market. For now I cannot see anything worth investing or buy & hold.
• Market has fallen so much that it is more difficult for people to sell their stocks and funds now. Market will favour a temporary rebound against the overall trend but it's not going to be the next bull.
  
• What I do know is I buy to sell. I'm not against the buy and hold strategy which has its place in a uptrend market. Knowing when to sell is the most important discipline in making money in the stock market.
  

The important thing is not my friend portfolio worth but what has been learnt. He bought stocks and trust units with no idea of when to sell. He was an eager buyer but reluctant seller. He bought without any plan of selling. And it isn't necessarily his fault. Most willing investor have no idea of what is required to make money and if they have a broker or investment advisor, almost none will tell you either.

They almost never advise you to take a loss when something goes against you. It is a dis-service to both the investor and themselves. They don't always have a game plan; when to sell if you buy. They are just making naive people lose money. My friend learned this the hard way.

I have no doubt my friend will recoup his losses when the economic and financial situation turns in his favour. After all he paid his dues and learnt the most important discipline in investment and trading.