Saturday, March 14, 2020

War strategy in a bear market

The recent market meltdown prompted me to re-organise what I classify as emergency cash and war-chest and better fencing of cash and cash equivalents. This comes about as I increased my emergency cash from 3 months of expenses to 12 months. By doing so, I'll fence up more cash that I can't touch for investment, hence the exercise to really look into this.

I have various issues of Singapore savings bonds (SSB), as well as Frasers 3.65% bond and Azalea bond. I decided to classify those under emergency cash. The SSB can be redeemed at par value, and while the two bonds that I held had their prices falling from their highs (Frasers went below par even), I think they are still safe storage of emergency cash. Unlikely for them to do a Hyflux on me, again.

 After accounting for the switch in portfolio counters, I realised I've spent about 15% of my war-chest in a week or two of buying. In this kind of climate, you can buy something and have it fall 10% the following day or so. Crazy times. How does one cope with this? Just be 'delusional', in the sense that you keep thinking the market will return to its formal glory, that this will all pass eventually, that the enterprising human spirit will somehow get you over this and that a few years down the road you'll be wondering why you are even fussing over this minor hump on the road.




I think I've experienced a few crashes in my investing journey so this is not going to be any different. The first few I've 'wasted' it by not being emotionally steady, and/or didn't have enough cash, so I'm determined to make the best out of this. I've some support groups - people who share the same philosophy in money management - so they helped a lot to allay whatever fears in buying up while others are fleeing. Grateful for that. I've seen enough people who made it out of market crashes like this, emerging from the ashes of their portfolio with their net-worth doubled or tripled, to believe in it, so I'll try my best to emulate them.

That said, hope still has to be tempered with ground-level reality and practicality. I must survive all these in order to have a chance to thrive later when all these are over. The top 2 priorities are really health and job security. If that fails, all else fails.

How to spend the remaining war-chest? I think the problem can be split into how much and how long. STI has fallen about 27% from the last peak to the last close, while SP500 is down 20% and HSI about 28% down. Most often, crashes recover after about 30% down. Rarely does it do a 50 to 60% crash and then once in a lifetime, you might see a more than 85% crash. I think based on past history, we should spend the bulk of our war chest preparing for the 30% to 50% crash, rather than the world-changing 85% crash. I think when it comes to that, nobody is really prepared for that. If that comes, there will be more things to worry about survival than about thriving. That should settle the part about how much.

How long then? History shows that it can take 1 to 3 yrs for the bear market to play out from peak to trough. Counting the last peak for STI to be in May 2018, we're about slightly less than 2 yrs right now in Mar 2020. Perhaps it'll end by 2021, in about a year's time. That correlates to what PM Lee said about how long the coronavirus will play out. I wouldn't take it so literally to be exactly 1 year, but that should give a helicopter view of how fast to deploy.

Take care of your health, and prosper.


7 comments :

WTK said...

Hi,

My strategy is the same and simple. Buy in equal amount on a monthly basis. Bear or Bull market do not matter for me. I buy and hold for dividend.

WTK

la papillion said...

Hi wtk,

As long as you have a strategy that works for you, why change? Good for you!

Rolf Suey said...

Hi LP,

Been awhile. Hows life?
i just wrote a quite similar article.

Another thing is also to determine what kind of crisis it’s going to be.

GFC - simple. Affects bank.
Tech bubble - tech stocks

This one is quite complex with virus and oil price. which can possibly led to a bank debt crisis.

Imagine every country introducing stimulus. Where they get the money from? Printing?

Currency crisis eventually?

la papillion said...

Hi Rolf,

Yeah, I read yours :)

I'm pretty much the same - working, saving hard esp in times like these and also a new addition - working hard at exercising haha

Hope everyone stays healthy and prosper!

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