Thoughts about timing the market

I haven't posted a while because school was really busy this month with me rushing through my FYP! Nevertheless, I am glad to post again and share some ideas I have.

We always ask ourselves when to enter a stock and either lament when the stock drops after we bought, or when the stock rises if we did not buy. Now, I would like to present this situation in a more technical format, in the form of an Excel spreadsheet. One example I will be taking here is Capitamall Trust.

I scrapped the price and dividends data from Yahoo finance and did a simple analysis here. For simplicity's sake, I used the closing data of every month to look at it from a monthly point of view. The gain here is the net profit here. For example, if gain is 172.82%, that means you will get $1.72 for every $1 invested.

Compound Annual Growth Rate (CAGR) will be what I'm using to gauge here and for those not familiar with it, it is just the (Ending Value of Asset - Beginning Value of Asset) taken to the power of (1/number of years), then divided by 1. Basically, it measures the growth rate of an initial investment to its current value. To be clear too, I am accounting for dividends in the ending value to have a more accurate view and the ending value is the current price of Capitamall Trust now. For a more elaborate explanation of CAGR, you can check here.

I then plotted a CAGR graph over time here for a better visualization. 

So we notice that CAGR has been fairly constant at about 6-7% and then a sudden spike up at 2017-2018. This can be attributed to the run-up prices during the 2017-2018 period if many of you all may recall. But ignoring this outlier, we can see that any point of entry will yield us a decent CAGR of at least 6%. So during any point, it will be good to enter even when prices are higher than normal. 

But of course this model has its caveats. The reason why the picture looks so rosy is because the reit now is close to its 52-week high, which greatly inflates its ending value. If the price was any lower, CAGR would be lower than the current illustration. Another reason would be because of the consistent flow of dividends. I suppose if you replace Capitamall Trust with a bearish stock, things will not be so brilliant. 

However, I hope to bring through the message that timing the market might not be that important after all, it is identifying stocks with good potential that is the key. Of course, if we can time the market, our returns will be better enhanced but if we can't do that, we still can enjoy pretty good returns.

But of course, based on the argument that I have just presented, should I buy Capitamall Trust when it is hovering very high? Well, of course I hope I can time the market if possible. But we will see...