Buy low, buy low, buy at the bottom!

“Equities on SALE!!!” – screamed most stock markets earlier this year. “Equities – Further Reduction!!!”, the announcements continued into mid and late 2008, yet, investors watched from the sidelines. In retrospect, waiting was wiser than jumping in. What about now? After all, many stock markets have already lost more than half their values!

You, the rational investor, are thinking it’s crazy to buy now when stock markets are in a pool of red.

Alternatively, you, the ultimate bargain hunter, are waiting for the sign that says, “Equity on Final Sales, last 3 days only!”

It is exactly what millions of other investors are thinking as well. So when is the best time to buy so that you are buying at the low?

But then, when can we expect equities to be at their cheapest?

They are cheapest when the market is at its “worst” or the outlook is at the “bleakest” – where it is impossible for things to get any worse.

Let’s cast our minds back and think of the world economy after the technology crash in 2000, Sept 11, 2001, Enron and Worldcom crisis in 2002 and the Asian SARS episode in 2003.

Each crisis seemed to signal the end of the world as we know it. This crisis is no different! SARS caused the Asian markets to plunge but shortly afterward, they shot pass their previous highs.

If you had waited because you thought that SARS would plague Asia for a long time, you would have missed out on some of the most spectacular growth. Does it mean one should just take an early plunge during a crisis?

Then looking back further at 2001 after the technology crash – one could have easily believed it was the “final sale” and entered the market then.

Unfortunately, the markets continued to be shocked by acts of terrorism (Sept 11) and then betrayed by corporate giants like Enron and Worldcom.

Even the most rational investor who bought at these perceived low points may call it quits.

When the situation could not get any worse, it just did! Does it mean one should just wait and see? After all, I did describe the current crisis as the “First world financial tsunami” – have the waves stopped or is it an interlude before the next big one?

The equity market is like a roller-coaster ride, as it plunges headlong into a great fall, investors will lament and throw their hands up in despair.

A friend of mine jokingly said that her long-term investments may now be so long term that they would only benefit her grandchildren.

Are you prepared to buy when the situation is bad, so bad that it cannot get worse? That, by definition, is to buy at a low and maybe even the absolute lowest point.

Unless you are still on the roller coaster, you will not be able to enjoy the upswing when it passes the bottom of the great fall. And if you choose not to be on the roller coaster, then don’t complain that you are always unable to buy at a low.

In fact, the stock markets have always recovered months before the real economies hit the bottom.

A sensible approach is needed, coupled with great mental and emotional strength to overcome the fear of loss in such instances.

While it is silly to buy simply because markets are falling, sticking to fundamentals does work. Buy in anticipation of future re-growth at reasonable prices and persevere through possible set-backs – this is likely to succeed over the longer term.

If you have what it takes, I would suggest a regular drip into the market.

For example, if you have RM100,000, divide it into 10 lots of RM10,000 and then invest each lot into the market monthly. As you ride the market down, you can be assured that you are buying cheaper.

Of course, the best outcome is that, in the course of such regular investing, you manage to “catch” the bottom.

As I always believe, if you get value for your money, then you don’t have to worry about whether it’s cheap or expensive.

Tay Han Chong is senior vice-president and senior head of division, Personal Financial Services Division, UOB