Thursday, January 14, 2016

The Greasy Panda crash of 2016

As I type out this post, STI is down another 47 points to 2650. Everyday you'll see the oil and gas sector, as well as the banks going down and down and down. For every bear, there's always a name attached to it. In my little group, we call this the greasy panda - greasy because it's oil related and panda because the last straw that broke the camel's back seems to start from China.

For those who had the cash to capitalise on this, it's a dream come true. Such events, should we survive, will propel us a few years forward. The key word is that we need to survive through it. I think now we shall see whether you can take the risk that people talk about in the stock market. If you're a Kepcorp investor, seeing your holdings drop 5% everyday is not funny at all. In order not to panic sell and capitulate, I think it's important to sit tightly in your 3 legged chair.

There's a lot of bargains out there. Singtel and Starhub are around the same price now, battling each other to see who can go down more. Since they are at the same price, which would you buy? All the banks are priced below their book value now, which means they are really at a very good valuation. The problem is whether the book value (Asset minus liabilities) can be trusted upon. The banks hold debts for oil and gas companies, as well as their bonds, so if one topples will it drag the rest down with it? Reits are priced at ridiculously high yields now, but between a blue chips at near reit yield vs a reit at super high yield, which would you rather buy? And then there's the oily stocks like semb corp industries, semb corp marine and kep corp. Do you catch a falling knife and hope for mean reversion to kick in? Or is this time different?

These and many other questions are not easy to answer because nothing is clear. If you wait until it's very clear, you'll likely miss out the initial reversal. But if you don't wait until things are clear, you might risk entering too soon. Again, more questions and no answers. More doubts and not enough cash.

What would I do?

1. Proportion each investment with a fixed %. If things go sour, it won't drag your entire portfolio down with it. Do not average down blindly.

2. Stop staring at the watchlist if it affects you. Life goes on with or without the stock market. If you didn't do point (1) properly, you'll get unduly worried, then perhaps you should reduce your holdings. Sell down your holdings to sleeping point. Don't lose sleep over such things.

3. Work hard and save up more. If stock market is a precursor for the economy at large, it doesn't bode well for sg economy in the next 6 months to a year. If your income stability, one of the legs of your 3 legged chair, is threatened, then things will get even harder for you. So save up for both your emergency funds and also your warchest. Survive first, then we can talk about prospering. Be robust first, then we talk about anti-fragility.

4. Buy something in the stock market. We're at this stage where the odds are that in 5 yrs times, we will wonder why we didn't put in more money in the market.

For the uninitiated, welcome to your first bear.


GMGH said...

Hi LP! Fantastic post! I've been thinking many of those same things you mentioned. I agree that valuations now are attractive for many counters in the long run, though no doubt that nothing is stopping it from going lower in the short run (less than 2 years)! Those capital allocation decisions are also running through my mind. I think my strategy will be going for the blue chips on the way down, and REITs on the way up. REITs seem more prone to calling for rights, and that might not be ideal if cash is becoming tight all over.

la papillion said...


Thanks! I think buying blues first is a good idea. They are the ones that usually go up first when the market recovers, before spilling over to the smaller caps as people gain more investors and try to find bargains. Looks like you got all of it planned out ;)

Rolf Suey said...

Hi LP,

Good post.

My only comment was : This post should be published many months ago when many are still partying!

Anticipate, Patient and Strike!

la papillion said...

Hi Rolf,

Haha, but I did post it when the market was starting to come down...I think I always do an encouraging post, to me and my readers, that the market downturn is not as scary or as depressing as it looks, and to take heed and have courage to brave the storm :)

Anonymous said...


I am "guessing" since we are still clueless about the development, it can't be the end of the bear. This is going only to be the start, the most, mid. Still sometime to sort out finance before buying.

If uncertain, I like what you said, work harder and save more. I think most people better of building of a career than hoping stock market can replace human capital. Ok, that includes me. haha

temperament said...

Thank you for reminding me to buy reits when they ask for money.i had experienced it during 2008/2009. The same experience happened with banks. As for blue chips just have to be very careful to choose those that i think most probably will survive and recover.
Not only able to survive and also able to recover as fast as possible.
Actually i think some Funds never invest in banking stocks. Some people think it's the most dangerous time to buy banking stocks at this time. But people always say Singapore banks are one of the strongest and safest in the world.
So far so good.
How to be more sure?

la papillion said...

Hi temperament,

But perhaps this time the crisis is of a different nature. Don't think there will be a mass fall of reits like the last one because they are generally more cautious in their leverage this time round, precisely because of the lessons learnt from the last. Banks are also much more equipped to handle this kind of things with the introduction of the basel i,ii, ii structures.

Maybe it's still too early days to say for sure, haha

Sillyinvestor said...

Hi LP,

I noticed something different. While STi is almost going down in a straight line, the companies under my radar have the low behind them, of course Sembcorp is going down and down.

Many are surprising resilient.

So we buy when our counters go down 20% or the market goes down 20%?

The best defense is the clarity into next 3 years earning.

I think I pass the Mind Test is this mild bear market.

I am enjoying my days better, the non-monetary part. Think will blog about it if it doesn't fade away ...
My chin ups went from 1-5 in 2 weeks, and weight goes down 2 kg! I pull my belt tighter by 1 hole.

I think finally I had hit my bottom