Investment Approach


Market Timing

Every investor wants to buy low and sell high. Let's quote a famous assumption: "The smartest and luckiest Canadian investor would have bought stocks in the ‘60s, switched into real estate in the ‘70s, bought gold bullion in 1979, then GICs in 1980, switched back into stocks in 1982, bought some real estate in 1985, sold it in 1989, and then concentrate on picking and holding stocks until the bond market rally in 2000. And all the above as much as possible in an RRSP."

If he/she is doing exactly what the above suggests, a one dollar investment in 1960 would turn out to be $36,000 in today's money. However, none of us was that smart and lucky. On the contrary, we are always caught in the wrong time of the market, and finding on the hindsight that we were actually buying high and selling low.

There are all kinds of tools and analysis claiming that they can help the investors to find the right time to buy. However, there are evidence showing that asset mix decision accounts for 80% return of the portfolio, which means the timing of purchase only affect 20% of the return of the market.

Dollar Cost Average (DCA)

Dollar cost averaging (DCA) is building on the opposite idea of timing the market. As mentioned earlier, people are always trying to time the market, and always time it wrong. Dollar Cost Averaging is to purchase a equal dollar amounts of a given investment on a regular basis, for example, you set up a pre-authorized account with your bank to purchase $100 mutual fund every month.

Dollar cost averaging is an efficient way to invest in products fluctuate in price. You buy more units when the price is low, and fewer units when the price is high. It remains one of the best ways for investors to defend the bad markets.

The following 3 scenarios is based on the assumption that investment tends to go up in the long run, the end result is DCA wins.

DRIP is a very good way of exploring the Dollar costing averaging approach at very low cost, and very good long term return.

Buy and Hold – keep transaction fee and capital gains to minimum, stuck with poor investment choice



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