Monday, January 11, 2016

Don't get bullied by the bear

I was in Bangkok when the market went crashing through several levels of support to end up where it is right now. Even though I didn't spend a lot in my trip there, my 'online purchase' is of several magnitudes more than my wife's physical shopping. I had queued for several blue chips and the order got fulfilled one by one. We know this is a bear territory because for many counters, we're in unchartered territory. If you are using the free Chartnexus, you'll know what I mean. The prices are way lower than the last 3 yrs, possibly 5. If you zoom out, you'll see most stocks are right at the bottom of the chart. Suddenly we're back in 2011 to 2013.


I'm a lot less bothered than the last bear. I think whether you will panic in a bear market boils down to three main pillars:

1. Income security
2. Portfolio allocation
3. War chest level

Like a three legged chair, if any one or more of these legs are chopped off, the whole chair will topple.




1. Income security

This is simply how safe your income is. If you're still working, like me, then how secure is your job. If you're not working, then how safe is your passive stream of income coming in. I think we still need to pay various things. Some people have to pay more than others because they have more debts or overhead cost to handle. Regardless, if your income stream is threatened, I think you will be a lot more panicky in a bear market.


For me, my main source of income is from tuition. It's been fairly stable for me once I got the hang of it. I think my income security is pretty good. At the back of my mind, I'm always afraid what funny things MOE can do to threaten my livelihood, so I'm prepared for that by building up my passive income stream from investments. Since I'm not beholden to any one company for my income, I think I should be pretty secure, but I'm certainly preparing for major structural changes should something big happen to disrupt the industry in the next 15 to 20 yrs.



2. Portfolio allocation

In the past bear market, I was heavily concentrated in a few s-chips. I kept averaging down as it drops until I capitulated and sell off at a huge loss. I'll never do that again. This time round, each position is capped by a percentage to entire portfolio size. I think the size of one position in any investment should be proportional to the knowledge you have of that investment, capped to an absolute amount. If you're not so certain, you should have less of your portfolio allocated to it. Vice versa. For newbies, this is a real risk, because if you're not sure of what you're doing, and you keep adding in as the price keeps dropping, you're in for a blow up. I know people who are 50 or 60% into a single counter, but I'm not them and I don't ever think I have the balls to do that.



3. War chest level

Simply put, how much investible cash do you have? A bear market is only good if you have the cash to capitalise on it. Otherwise, you're just window shopping in a sale of the decade. I still have about 30% (down from 40% in Dec 2015) cash that is not allocated yet. Based on my personality, I don't think I will ever be 100% invested. The good thing is that as the new year starts, I should be working more towards my peak and my war chest will be shored up again. There never seem to be a time where it's not good to save up more. In bull times, you save up more to prepare for bear market. In bear market, you save up even more to pump into investments.

Everyday is a good day to save, LOL!



If you're worried about your recent investment souring, fret not. When all these are over and done with, and there's an official name for this bear market we're in, coupled with a whole lot of reasons by experts on why we ended up like this, you'll regret why you didn't put in more money now hahaha!

12 comments :

Sillyinvestor said...

LP,

;(

My Chair only got 2 legs now. I show hand already. Can't help with my itchy fingers.

Although My savings should be up and my wife warchest just opened...

I hope I dun mind window shopping when the sales get bigger...

The last chest of CPF money....is still untouched...

Lee Chin Wai said...

Hi LP,

I always wanted to ask you this: what does your blog title "Bully the Bear" mean? Do you mean to bully the bear, or bully is the name of the bear? They are very different interpretations.

la papillion said...

Hi SI,

Haha, you so fast finish up your warchest?? Slowly eat lah! Actually you even better, you use other people's money in the form of your wife's savings lol

la papillion said...

Hi Chin Wai,

You got both interpretation correct :) Bully is both the name of the bear, as well as the verb . You can even form two together, as in: Did Bully the bear bully the bear? LOL

Which is the correct one? I think all of them are correct. They are just different sides of the coin ;)

coconut said...

you had bully the bear for too long already, change title to bear the bully.

just to remind everyone not all bears are the same! you don't just go in and buy something thast had been knockdown badly, this crises is difinately different from 08/09 and 11/12! you have to choose wisely, i'm not an investor so can't gives any opinion haha..

la papillion said...

Hi coconut,

Wow, rare guest :)

I'm into the market in the 09, skipped the 12 entirely because i'm not ready, and now I'm ready for this new bear! At least, more ready than the previous 2 haha

coconut said...

good to hear that you have all the confident to bear the bully, its not easy to go through bear cycle.

today crises is a economic crises, fuel by deflation and over supply. 08/09 was a financial crises. i'm no good at explaining but this time round, many company is going to go under unlike 08/09 where most company survived. that is why i suggest invest wisely and only invest in company you understand a lot.

in 08/09 you can buy any company and subsequently they all recover in prices, this time i got a feeling the cheaper you buy, the worst its going to be. better invest in good company that not only can survive the downturn but to gain in strength when comes recovery.

every crises are different, never use the same tactic every time when encounter them, thats my point.

la papillion said...

Hi coconut,

I love your last paragraph - every crisis is different, so don't use the same tactic every time. Thanks for your kind advice, will rmb it. I think we haven't seen the worst yet. By the time we're done, not sure which company cannot make it and have to merge with others. Whoever survived will be the stronger ones, but it's hard to know in advance which one.

coconut said...

i writing this becos i had a friend who is currently average down in one counter that is getting cheaper and cheaper each day pass, a counter that i think has little chance of recover if crises continue on.

personally i think investing is not about just buying cheap stock and ride market cycle. its about knowing the industry and the company, you are about to invest, inside out.

la papillion said...

Hahah! That's how I crash out in the first bear! Your friend better have proper allocation for his counter. No need to show hand haha

coconut said...

sad to say, my friend is stuck! and i cannot even comment or say anything, its too late!

another friend of mine (they were all my classmate) who stay in china, you guess it right, invest heavily into china stock market using his wife name, is now in deep trouble also. i warn him many times but he was making big money early last year! what else can i say? they and many others just treated the stock market like casinos.

by the way i also invest some money in the stock market and are now under water too, i too will be buying more as the market keeps going down haha...

Frugal Daddy said...

Thanks for sharing your experience!

Hope the bear is not made of steel.