Wednesday, May 5, 2010

Debt Woes in Greece present buying opportunity. But where are my funds?

Recent events in Europe are weighing heavily on investors' sentiment. It seemed that the fiscal problem faced by Greece is the tip of the ice berg. Looking at the way this whole saga is playing out, this is the correction that many people have been waiting for.

I am not in the best position to talk about the economics behind Greece debt problem. But I want to touch on a dilemma that should be troubling many investors right now. 

For investors, the selldown in the stock market is a blessing in disguise. For those who have stayed sidelined ever since the rally has began, this significant correction will allow them to enter the market. For those with a long term horizon, the selldown presents an opportunity to buy into the weakness. So which group do you belong to?

But the one big question begets. How much funds do you have to capitalize on this buying opportunity?

I cant speak for others. As for myself, I am sad to say that my funds are pretty low at the moment. Sad to say, I am unable to load more position to my existing portfolio.

This is the main purpose for my blog entry. I want to remind myself on the importance of setting aside a pool of emergency funds for such scenario. Back in 2008, it was noted that Warren Buffet had a huge sum of money sitting in his bank to capitalize on extreme market weakness and that amount was US$1 Billion.

I for one, hate to accumulate so much cash in my bank account. The thought of leaving it with the patry interest rates are just too disturbing. So whenever I have spare cash, I just put add them to my existing stock portfolio. Timing the market is not my forte. To me, the time in the market is more important that timing the market. But I cant help feel a sense of dejection to know that if I had a pool of readily available funds, I will be in a better position to take advantage of the market weakness.

For a start, thou have decided to set aside a 5 digit figure to be left in the bank to take advantage of future volatility. And by that, I am referring to the scenario where I will add position to my stock portfolio when the stock market has corrected by 5% or more.

This is all about developing discipline and I see this strategy as a variation and not a contradiction of the age old philosophy of not timing the market.

So let this be a good lesson for me and I shall revisit this topic when such a scenario takes place again. Right now, I am going to stay by the sideline and watch the wild swing of the market while lamenting to my pathetic self.

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