When can you take a profit if you bought shares at the peak?

[alvin]

Stock market goes up and down unpredictably. I believe some investors have experienced buying at the wrong time – at the peak or near peak of the stock market, and to their horror witnessing the stock price plunge. Many of these investors will find it hard to swallow losses and will want to switch to ’safer’ instruments like bonds. A few investors will hold on but not sure how long will there see their account turn green again. The good news is if you hold long enough, stockholders will eventually be better off than bondholders. The question is how long?

I found a rather accurate answer from a financial analyst and investment manager, Edgar Lawrence Smith, who published a book in 1925, titled “Common Stocks as Long-Term Investments“. In the book, he mentioned that one will take 6 to 15 years of holding a stock in order to see a profit.

Jeremy Siegel verified the figures in his book, “Stocks for the Long Run“:

“Smith’s conclusion was right not only historically but also prospectively. It took just 15 years to recover the money invested at the 1929 peak, following a crash far worse than Smith had ever examined. And since World War II, the recovery period for stocks has been better than Smith’s wildest dreams. The longest it has ever taken since 1945 to recover an original investment in the stock market (including reinvested dividends) was the five-year, eight-month period from August 2000 through April 2006.”

Given such accuracy, you should assure yourself as a successful and profitable investor if you hold on to your stocks for 20 years (Of course, the caveat is to hold the correct stocks). You can increase the certainty of winning by investing in an index fund and hold it for 20 years. It is exactly what I am trying to achieve with STI ETF.

Hopefully, the 2 authors and me are able to convince you to have the tenacity to hold on to your (right) stocks or an index fund for the long haul. Sometimes, you just need that kind of assurance when the going gets tough.

[Dennis Ng]

Stock market goes up and down unpredictably. I believe some investors have experienced buying at the wrong time – at the peak or near peak of the stock market, and to their horror witnessing the stock price plunge. Many of these investors will find it hard to swallow losses and will want to switch to ’safer’ instruments like bonds. A few investors will hold on but not sure how long will there see their account turn green again. The good news is if you hold long enough, stockholders will eventually be better off than bondholders. The question is how long?

I found a rather accurate answer from a financial analyst and investment manager, Edgar Lawrence Smith, who published a book in 1925, titled “Common Stocks as Long-Term Investments“. In the book, he mentioned that one will take 6 to 15 years of holding a stock in order to see a profit.

Jeremy Siegel verified the figures in his book, “Stocks for the Long Run“:

“Smith’s conclusion was right not only historically but also prospectively. It took just 15 years to recover the money invested at the 1929 peak, following a crash far worse than Smith had ever examined. And since World War II, the recovery period for stocks has been better than Smith’s wildest dreams. The longest it has ever taken since 1945 to recover an original investment in the stock market (including reinvested dividends) was the five-year, eight-month period from August 2000 through April 2006.”

Given such accuracy, you should assure yourself as a successful and profitable investor if you hold on to your stocks for 20 years (Of course, the caveat is to hold the correct stocks). You can increase the certainty of winning by investing in an index fund and hold it for 20 years. It is exactly what I am trying to achieve with STI ETF.

Hopefully, the 2 authors and me are able to convince you to have the tenacity to hold on to your (right) stocks or an index fund for the long haul. Sometimes, you just need that kind of assurance when the going gets tough.

Personally I use a combination of FA and TA and practise Market Cycle Investing. ie. I sell most/all of my stocks when I think the market is near peak and re-invest when market is low.

I sold 80% of my stocks and locked in gains of over 200% over period of year 2003 to year 2007 in Year 2007. In last quarter of year 2008, I began loading up on stocks again, the market went lower from Nov to Mar 2009.

However, despite missing the Low in March 2009, my overall stock portfolio is now up 40% again, and I'm in the New round of profits (excluding the 200% gains I made earlier).

I don't believe in Buy and Hold any longer after my prior painful experience in the 1998 Asian Crisis and the Year 2000 Technology bubble burst. I'm glad I used the "lessons" learned in previous Crisis and came out ahead in the current Financial Crisis and in year 2009, I began sharing my knowledge/experience through seminars.

[alvin]

Selling near peak and buying at near bottom will indeed yield great profits! The key will be to have a certain degree of accuracy in identifying the peaks and bottoms.

[Dennis Ng]

Selling near peak and buying at near bottom will indeed yield great profits! The key will be to have a certain degree of accuracy in identifying the peaks and bottoms.

actually, it is not difficult to know roughly whether the market is near bottom or top. As I have explained and personally experienced, one does not need to Pick Exact Top or Bottom to make Big profits. It is analogous to saying that we don't know when exactly the Sun will rise, and when EXACTLY the sun will set, but from experience, we can easily know roughly whether the Sun is near to sunrise or near to sunset.