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New Market Outlook After Dow Plunged 1800 Points & Portfolio Reveal

Key topics covered in this article are 13th June 2020 Market Outlook, partial portfolio reveal, Frequently Asked Questions (FAQ) and some thoughts for young readers.


13th June 2020 Market Outlook

Following the outlook shared on our Telegram and Facebook page (links at the end of the article) on 9th June 2020 where I cautioned on the market having “Fear of Missing Out” (FOMO), we saw the news headline of Dow crashing more than 1800 points on 11th June 2020 [1].


In this section, I will be explaining what led me to think that there is a possible FOMO phenomenon and will be adding on to the outlook.


Some useful information. Have mentioned in my articles that the stock market is NOT the economy, usually market moves ahead of the economy. Recall the March crash, most job losses has not happened yet. The crash already took place weeks ahead of unemployment data. Similarly for now, market tanked in anticipation or fear of a possible second wave of COVID-19 cases [2]. This was in spite of positive news reported on the 11th June 2020 where US weekly unemployment data was better than expected [3].


Do take a look at my previous article “Oil at 21 Yrs Low || SARS vs COVID-19” where I shared on the case study of SARS. Likewise, the market moved ahead of the economy. In the same article, we were lucky to share that oil was close to bottom as oil went negative and bottomed the next day after we published the article. Again, I was lucky, never expected it. Probably luck was with me as this year is the year of the Rat which is my zodiac 😅.


Back to the main topic.


S&P was around 3400 pre-COVID-19, recently rebounded to 3200+ as though as there isn't any recession at all. We see news like Nasdaq hitting record high when US recession became official [4], Warren Buffett being called an idiot [5], comments in social media like “Don’t worry! There’s Fed, just buy!”, investors speculating on bankrupt US companies [6] and retail investors driving up the share price of Hertz (surging 825%), a company that couldn’t meet its debt obligation. On the other hand, billionaire investor Carl Icahn actually sold all his Hertz stake at a loss [7]. At the same time, Hertz has proposed to sell more stocks to capitalize on its quixotic stock rally [8]. Not just in the US, elsewhere like Philippines are also on FOMO [9]! Sad to also read news with headers like “Fear of Missing Historic Rally Has Koreans Borrowing to Invest” [10].


Global stocks valuation are also at a high, not seen since 2002 [11].

Furthermore, we see the total market cap to US GDP ratio is again close to record high levels.

Several graphs in this article are obtained from Twitter. Though not able to verify its accuracy, it serves as a 2nd opinion. The current US Call to Put Volume is of the 2nd largest of all time. Euphoria coming back?

These are happening while the worldwide daily new COVID-19 cases hit a new high on 11th Jun 2020 [15].

Although the total daily new COVID-19 cases in US has been on a downtrend, several of its largest states like California, Texas and Florida has been on the rise [16].

Moreover, the unfortunate event of George Floyd that triggered riots/protests [18] in the US could lead to the possibility of a second wave of COVID-19 infections [19].


However, on the flip side, Trump’s election is at Nov and he usually references the stock market as one of his KPI. Politics and policies do play a large role in share prices. Trade tensions are still ongoing [20] but my guess is that Trump might not escalate further due to Nov elections. Reason being that trade tensions hurt both US and China stock markets.


Shown below, Trump seem to be able to move the stock market through his tweets. If his direction is to boost the market, he might be able to do it.

Not to forget unlimited Quantitative Easing (QE) from the US, low interest environment and various stimulus in place to stimulate the economy [22]. Treasury Secretary Mnuchin has also mentioned “We can’t shut down the economy again” and that he is ready to request for more fiscal spending when needed [23]. Hence, US is not out of cards. My guess is they could also print more money next?


Recall my previous article “EngineerInvest.com’s go-to Charts to Determine Market Bottom” where I touched on the possible “2nd Tremor” of a crisis. VIX (also explained in the cited article) has now spiked almost 50% on 11th June 2020 alone, which I believe is likely a “2nd Tremor”.

Verdict:

I mentioned that the market is on FOMO mode and I’m not buying in my Telegram and Facebook update on 9th June 2020. However, after Dow tanking more than 1800 points in a single day and if the selloff continues to worsen resulting valuation to be cheap, I will most probably be going shopping again.


Tip: How to protect against “FOMO”? Apart from inverse ETF (easier to understand but I don’t really recommend due to the risk involved), another way is to do “Protective Put” whereby you “insure” your long term stocks by locking in the strike price for a period of time depending on the duration of your put contract. This of course comes at a cost. Sounds “chim”? More details on Protective Put can be found here [25]. These are just some of the many ways out there to hedge and protect your portfolio. However, every technique has its cost.


It is also not wrong to not do anything and disregard market fluctuations as long as the companies you bought are fundamentally strong companies.


“Only buy something that you’d be perfectly happy to hold if

the market shut down for 10 years.” – Warren Buffett

[26]

Partial Portfolio Reveal

As promised, I have revealed a portion of my portfolio in my Telegram (click join) and Facebook page (like to follow). Do join me there! Whenever relevant, I will also share quick updates of my views on the current outlook in the channels on a more frequent basis.


Thank you again for those who subscribed through email addresses. Do check your spam box as our email notifications would be marked as spam. In addition, would strongly encourage you to join our Telegram and Facebook page as some of our emails couldn’t be sent when we tried to share the market outlook with you guys through email.

I have close to HK$800,000 invested in Alibaba (9988.HK), one of my top 3 holdings. This heavy position is due to Alibaba (9988.HK) being under my “main core” asset allocation. Some reasons why I believe strongly in this company is covered in the previous article “After Jack Ma, is Alibaba an enduring 100-year growth machine?”


As you would have noticed, I only entered a small position in some stocks. Usually, these are the stocks that are under my “10% multiple small caps” asset allocation. Reason being that no doubt small caps have higher potential to make a lot of money but the risks are also higher than large caps. I also use part of this allocation to make quick returns from the swings of the market, buying and selling in the shorter term.


Asset allocation is quite an important aspect of investing. It forms the basis to optimise your returns and balance the risk that you are willing to take. There is no perfect allocation method. It all boils down to your investment style, risk profile, investment horizon, needs and targets. Time to time, I will also rebalance my asset allocation.


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Frequently Asked Questions (FAQ):

Sincere thanks to all your emails. It’s always motivating to hear from readers. Received quite some emails lately, do bear with me as I am in the midst of replying to all. I will try my best to share as much as I can in the email replies while balancing replying to others at the same time.


Moving forward, I thought that it will be good to share some email threads here as some of which are Frequently Asked Questions (FAQ) which I believe will be helpful to most. If anything else comes to mind, I will add on here too.


How do you manage to juggle your time to monitor stocks when work is so hectic?

Email #1 from fellow shipyard bro:

Reply to Email #1:

To elaborate further on “it is only the start that is challenging”.


Some pre-requisites to be a better investor:

  1. Know your investment style. Are you a patient investor, high risk high return, etc. However, they do not have to be mutually exclusive.

  2. Know how much risk you are willing to take and to “set up” your own Asset Allocation (i.e. % allocated on cash / high yield stocks / growth stocks / bonds, etc.).

  3. Basic knowledge in selecting winning stocks.

  4. Knowing when to buy, when to sell.

  5. If it’s still too difficult, probably consider index investing. However, I do suggest putting in the effort to learn how to pick stocks. The returns are much higher and it’s really not as difficult as it seems.

Should we follow what legend investors are doing?

Email #2:

Firstly, congrats if you’ve bought DBS as it has run up quite a bit from the March lows.


As much as I’ve modelled my investment philosophy towards Warren Buffett or the “Oracle of Omaha,” I don’t buy what he buys and sell what he sells.


Warren Buffett recently cut back some of his stakes in US banks such as JP Morgan [27]. On the other hand, I’ve actually bought banks stocks instead.


In my previous articles, I mentioned that US is relatively expensive as a whole. However, not all sectors. Due to the low interest rate environment, financial stocks seemed to be unloved. It was the most unloved sector back in April 2020.

This question is a topic on its own. Stay tuned for upcoming article where I will explain more on: Why not to “copy trade” legend investors and explain a little more on my take on banks in a low-interest environment.

Thank you Jon. I'm encouraged.


Feel free to share your suggestions with me as I strive to improve and make this blog interesting, fun and informative for all.


To All Young Readers

Received quite some emails from young readers. Doesn’t matter how much you start with, be it if you are a poly, ite or uni grad, I would like to encourage you that:


Do not despise small beginnings. Whatever amount you start with; one can achieve a lot in a decade.


I’m a 187/300 PSLE scorer, a N level student and NUS dropout. I could still remember how my parents had it tough whenever grades were brought up by acquaintances, how I never follow my script and shared with everyone that I will become a millionaire some day on stage which ended as a laughing stock to times when one of my stock holding, OSIM went up 40 folds. Those were the fun days! (Check out my full story here). The greatest joy is not in making my first million but to have made my parents proud. God is good!


“Be bold, be courageous, be your best.” — Gabrielle Giffords


You guys can achieve even more than me, especially the time I wasted during my earlier years which I could have put to good use.


I foresee myself blogging for a long time to come. In future, say 5 to 10 years later (or earlier), if you’ve made progress in your investment journey and I’ve helped, do write to me. Looking forward to hear all your success stories!


“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with a 130 IQ. Rationality is essential.” – Warren Buffett


Re-sharing a story of a humble janitor that managed to build up a $8 million portfolio and donated millions to a hospital etc.


Cheers & Great Weekend!!


Disclaimer: Just sharing from experience as I have put my own money into the stock market over the period of 17 years. I am not a Chartered Financial Analyst (CFA) Charterholder and do not have any finance-related qualifications. Please also check out our full disclaimer.


The best compliment the Engineer can receive is your referral/sharing of EngineerInvest.com to your family & friends.


My Story “From N-Level to Masters, From $20k at 19 to over $1m at 33” (Also shared by Dr Wealth / theFinance.sg / NextInsight, etc.) >> About me


View >> my Portfolio

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Reach out to me at engineerinvest.biz@gmail.com


Reference Links:

1. https://www.cnbc.com/2020/06/10/stock-market-futures-open-to-close-news.html?fbclid=IwAR1vcB6kPeVgwgmGZw3qnWuob91KD_RhQ84ZS4dQV3uFBraYya_mY-ptBpI

2. https://www.cnbc.com/2020/06/11/global-stocks-reel-on-gloomy-fed-outlook-and-fears-of-a-second-coronavirus-wave.html

3. https://www.cnbc.com/2020/06/11/weekly-jobless-

4. https://www.channelnewsasia.com/news/business/nasdaq-hits-record-high-as-us-recession-becomes-official-12817366

5. https://www.marketwatch.com/story/warren-buffett-is-an-idiot-says-investor-who-claims-daytrading-is-the-easiest-game-ive-ever-played-2020-06-09

6. https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12338689

7. https://markets.businessinsider.com/news/stocks/hertz-stock-price-skyrockets-since-filing-bankruptcy-traders-global-holdings-2020-6-1029285231

8. https://www.bloomberg.com/news/articles/2020-06-12/hertz-proposes-1-billion-stock-sale-to-capitalize-on-odd-rally?srnd=premium-asia

9. https://www.bloomberg.com/news/articles/2020-06-10/funds-turn-cautious-as-philippine-stocks-swept-by-record-greed

10. https://www.bloomberg.com/news/articles/2020-06-11/fear-of-missing-historic-rally-has-koreans-borrowing-to-invest?srnd=premium-asia

11. https://www.bloomberg.com/news/articles/2020-06-09/add-risk-and-hedge-buy-mid-caps-playbooks-for-equity-rebound

12. https://www.bloomberg.com/news/articles/2020-06-09/add-risk-and-hedge-buy-mid-caps-playbooks-for-equity-rebound

13. https://www.gurufocus.com/stock-market-valuations.php

14. https://twitter.com/MacroCharts/status/1270309666069725189

15. https://www.worldometers.info/coronavirus/worldwide-graphs/

16. https://www.worldometers.info/coronavirus/country/us/

17. https://www.worldometers.info/coronavirus/usa/florida/

18. https://www.cnbc.com/2020/05/30/protests-and-rioting-erupt-in-cities-across-the-us-as-anger-boils-after-the-killing-of-george-floyd.html

19. https://www.cnbc.com/2020/06/03/as-states-reopen-and-protests-rage-the-coronavirus-lays-the-foundation-for-a-nasty-fall.html

20. https://www.cnbc.com/2020/06/09/us-china-tensions-over-coronavirus-scrutiny-on-chinese-firms-in-financial-markets.html

21. https://twitter.com/sentimentrader/status/1270346277612654592/photo/1

22. https://www.fxstreet.com/analysis/stocks-steady-ahead-of-fed-rate-announcement-202006100655

23. https://www.cnbc.com/2020/06/11/treasury-secretary-mnuchin-says-we-cant-shut-down-the-economy-again.html

24. Google Finance

25. https://www.investopedia.com/terms/p/protective-put.asp

26. https://imgflip.com/i/343am1

27. https://www.bloomberg.com/news/articles/2020-05-15/buffett-s-berkshire-trims-jpmorgan-goldman-stakes

28. Deutsche Bank Asset Allocation, EPFR, Haver Analytics, Data as of 15-Apr-20

"An investor should act as though he had a lifetime decision card with just twenty punches on it"  - Warren Buffett

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