Which is more important? Entry or exit point?

Let me share my experience. I used to work at Mid Valley (one of the most popular shopping malls in Malaysia), so I know almost all shops and if there are any renovations or new walkway structures, etc. After working on my financial model and analysis, I think that the fair value of IGB REIT (the mall operating REIT of Mid Valley and The Gardens Mall) is between MYR1.90 to MYR2.00. Despite knowing that my purchase price is somewhat on the high side, I chose to buy it.

The good news is – It did not take too long for the price to move to MYR2.00 after I bought it. Adding the distribution income (similar to dividend pay-out), my investment return is now better than I expected.

Yup. To no one’s surprise, I did nothing until the Covid-19 pandemic became a concern.

Due to the Covid-19 pandemic and Movement Control Order (MCO) implemented by the Malaysian government, all shopping malls’ daily operations must stop, except for essential businesses. Mall operators acted quickly by waiving their tenants’ rental. Hence, all mall operators are losing their rental income, car parking income, exhibition income, profit sharing, and other sources of income. Hence, the price of IGB REIT fell. After revisiting my investment thesis, I concluded that it would take quite some time for IGB REIT to recover during this time of great uncertainty. I decided to close my position. All profits and dividends were wiped out.

In fact, there were opportunities for me to exit with a decent return before MCO was implemented (at least twice) but I just let them go. Perhaps I fell in love with the stock, but essentially, my losses were due to my high entry point.

Given that high entry point, the upside potential is limited. Therefore, when the share price is neither high nor low, people tend to hang on longer than expected and hope that the market magically pushes the share price to a higher level. However, this is a low-probability incident.

If my entry point is sufficiently low, I can stay away from this kind of dilemma, take profit, and stop dreaming that someone would come to the rescue with their own money.

Remember, the stock market is a place full of emotions. When everyone is pessimistic, stocks get undervalued. When everyone is optimistic, stocks get overvalued. Pessimism and optimism are random events, hence, we should learn how to read the market sentiment before deciding on our investment actions.

When you enter at the time everyone is sorrowful, you need everyone to calm down.

When you enter at the time everyone calmed down, you need them to be optimistic.

When you enter at the time everyone is optimistic, you need them to be insane.

When you enter at the time everyone is insane, you need them to be high.

In other words, when you enter at a low price, you have the upper hand. You can choose to exit when the market calms down, turns optimistic, insane, or high. The choice is yours now. Notwithstanding, if you enter at the wrong time, your exit options are limited and there will be larger uncertainties.

Hence, stop focusing on profit-taking, put more effort into getting a low entry point that is more realistic.

Your profit is determined by your entry point!


Excerpt from The Hidden Truth of Stock Market by Ng Tzyy Loon