Oct 3 2016, 05:21 PM
QUOTE(drew86 @ Oct 2 2016, 07:38 PM)
IMHO, I think what guy3288 has been trying to point out may have been misinterpreted by most. Yes it is impossible to time the market, yes we will never know when and where the trough will be, NAV at point of purchase should not be a hindrance to top-up/invest as long as proper DCA is done. However there is no doubt that someone who purchased at a lower NAV will benefit more compared to someone who bought at a higher NAV, simple arithmetics. But if and when there is a dip in NAV, I believe that we can take advantage of that by topping-up a fund to bring the weighted average cost down (also to rebalance the portfolio if criteria are met) if we believe in the popotential upside of the sector/region invested, and it is a fund with good track record and fund manager. This, I believe is the only advantage we would get from a dipping NAV. On the other hand if one is deciding whether or not to start investing in a fund, then again one should be doing so regardless of the NAV, and (needless to say) to DCA into the said fund!
You're right. Investing into a fund solely based on NAV prices is not a good idea because the NAV is an arbitrary number derived from the total value of the fund's holdings spread out over an arbitrary number of units -- the fund manager could have decided that every RM1 value equals to 4 units. Instead, we should be looking to see if the market (or underlying holdings if you're diligent) that the fund invests in is expensive or cheap. In other words, buy when the market is undervalued.
Here's a simple example:
Topping up when "NAV is cheap" is essentially trying to take advantage of a temporary dip in market value (i.e. taking advantage of a sentiment-driven movement). We do this because we believe the market is cheap and that the market will correct itself soon. Note I said "believe" -- it is our hope that the movement will trend upwards again. A more experienced investor (like Xuzen with his balls) will rely less on hope, but more on research and actual data. Still, we'll never know what the future holds, thus we try to reduce the effects of timing by doing DCA.
That said, since most mutual funds invest in a diversified portfolio of stocks in a specific sector/region, it's NAV movement is likely to reflect the movement of indices that most closely matches it. Sometimes these indices are used as the benchmark for the fund. As most investors have no way to influence the stock picks of fund managers, experienced investors will choose to invest in mutual funds that outperform this benchmark consistently.
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