Thursday, August 18, 2011

No eye deer

The very recent market weakness shows how true your steadiness is, in the face of potential losses. There are many newbie market participants who started this journey after the horrible financial crisis and had never seen the market crashing 5% every other day, plummeting the so called defensive stocks like blue chips and high yield dividend counters into smithereens. Well, if you had never witness your portfolio blown away by perhaps 50% or more, if you've not seen the value of your stocks decreasing day by day until to to the point of giving up, whatever fancy theories about holding long term and buying when ABC counter is at X level (where X is usually way below current price) is just bullshit. Merely untested action plans for a bear market that is planned for in the bull market.

There are also people who seems that they are not prepared for a protracted bear market. Seriously, unless you have the unlimited bullets cheat code, you should never fire until you run dry. A typical correction on an uptrend will last perhaps only 1 day or so, but a protracted bear market (where the normal movement is down and punctuated by short upwards correction in price) can last for many months. You certainly do not want to fire at a horde of enemies, emptying your clip, thinking that the worse is over when the next wave of enemies come rushing at you. Bam bam bam, click... The hardest thing is therefore to decide whether a 'crash' in the prices is really just a correction or the beginning of a bear market. You can look at the charts to tell you, but ultimately, when it comes to action, you'll have to employ smart money management. The oft mentioned rules apply - don't put in too much in one counter, always have some cash at hand (even if it is eroded by inflation), fire sparingly...blah blah blah. I'm sure there are plenty of books / blog articles out there that will expand this topic further for your reading pleasure.

When market is highly volatile, you're start seeing a lot of talking heads coming out to talk about the market. Some will no doubt tell you that the worst is over while others will say that they had sold out all their positions and are waiting for STI to reach XYZ. I remember clearly during the great bear of 2008, there are some people in the cbox that mentioned that he had sold out all his positions and is waiting for STI to reach 2000. Eventually when the level broke, he began waiting for STI to reach 1800...then 1600...then 1400...then 1200. I'm not sure if he succeeded in waiting until it reaches there (I think the lowest is around 1450) and bought while the market clears the pivot point and turns around decisively. The point is that there are always people on both sides of the camp - that's why there is a market in the first place. There'll always be people more bullish and more bearish even if the same facts are presented to both. This is where, you, as the sole manager of your own money, will have to decide what to do. While the market is in the recovery phase currently, do your action plan and know what you would do if the market reaches this and that. Know what stocks you're going to get and at what price. Know how much capital you're going to spend at which junction. If you have a plan, you won't freeze like a deer looking at the headlights of an incoming car. In the market, making no decision is a decision. You're just simply passing the opportunity to make a decision back to the market to decide for you.

Is the worst over for now? We're certainly not doing those 3-4% movement per day now but I'm not that optimistic. I'll defer buying because 'the sale worth waiting for' could be coming. Anyway, I've already bought some counters back at great prices in the last round. If anything, I'm actually looking to sell some positions. But don't believe me, I'm just the talking head that I mentioned earlier on.


financialray said...

Yes, I remembered those dark days in 2008-2009. Stocks just keep going down lower and lower. Just when you think it is safe to go back to test the waters, the markets kept going lower again in early 2009. I was so sick of seeing the downtrend that I took whatever I had left to buy a new car in early 2009 when COE dropped to $200. I was the only one in the show room on Chinese New Year's eve with another Indian couple. My advice is tikam with money we do not need for the time being so that we have holding power. In the darkest days, one investor even mentioned that we stopped looking at the stock market for a few months to prevent panic selling.

coconut said...

why call those days dark days? its opportunity time! how many times we can encounter these moment?

these are the times where real money is made. forget about the zig zag in between.

Anonymous said...

This time the rebound will not be so fast and sharp. But with poor investment everywhere else, money may still pour into Sg equities so may not get that big a drop until the real big crash happens (if it happens). With so many uncertainties, I will just invest a small fixed sum each month (share or unit trust) and that is probably the safest - you won't miss out; you are definitely buying low but not the lowest and you will probably catch the bottom and upturn somehow along the way.

Grey said...

Weow.... the pink bear is getting more aggressive!

la papillion said...

Hi Financialray,

Haha, yes, i remembered those times too...I had to look away from the market too, because it's just too painful to watch. Hopefully this time round, I'm more steady!

Hi coconut,

I agree it's opportunity times...but if you're having positions with not much cash, it'll be painful. Crash without cash is useless, haha

Hi anonymous,

I think all rebound are not fast in generally. If it's fast, it's likely to be short covering. A man who had fallen down can recover so quickly and start running immediately too :)

I agree, should buy sparingly over a period of time.

Hi grey,

Cos the market is crashing harder!

PanzerGrenadier said...


Yes, it was tough during 2008-2009, I saw my portfolio at $50k paper losses if I had sold at the lowest of lows.

The key lesson I learnt and am practising to some extent is asset allocation. Even though I'm 80% in the equities market with 20% cash, I'll not be touching my 20% as this is my comfort buffer zone that allows me to sleep well at night :-)

Be well and prosper.

Temperament said...

HI Bully the Bear aka LP

i still have about 60% of my portfolio in the market.
In my younger days, maybe only 20% to 30%.
i admit this time i am a bit greedy.
i have stayed too long.
But this time when i were "fully invested" 100 %, i still have 40% to 50% of weapons on standby.
Which is not usual/normal for me.
i think it is because i want to sleep better than usual at night.
And also i am 63 going for more defensive than offensive portfolio.
It's also maybe because i am fortunate to have up-graded my weapon for the market from rifle to cannon.
Ha! Ha!
Shalom to all investors.

la papillion said...

Hi PG,

Likewise..likewise...lost around that amt too, some of it realized as well :)

SWAN (sleep well at night)..very impt :)

Hi Temperament,

I'm still very invested as well :) Good luck to us all!