I’ve gone shopping again in the recent stock market rout on 22th May 2020 whereby the Hang Seng Index suffered the worst single day decline in 5 years as China plans to pass a new security law . I’ve bought the following.
It has been around 4 months since I’ve left my job and answer to nobody other than my family and myself. Kind of enjoying it especially since it coincides with the stock market turning volatile, creating opportunities for investors and traders alike.
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Be a Participant Not a Spectator
When the stock market is in bull season, it is common to hear people waiting for a repeat of the past market crises. The wait can be many years such as from 2010 to 2020 where there is no major crash. Many wanted to be the first to sweep up strong companies at cheap prices. After the long wait of years and years, now that a crisis has hit, the tone has flipped again. People are not buying. They are holding their horses in fear that the market could tank further and only want to buy at the very bottom.
While I highlighted the change in tone, I am not encouraging any investment decisions. It is best to only invest if you have sound investment knowledge and feel comfortable about the potential (small or huge) downside.
"Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market." -Warren Buffett
My previous articles:
“Stock Market & COVID-19” where I cautioned (a month prior to the crash) of the possible market tumble & how to protect your portfolio published Jan 2020
“EngineerInvest.com’s go-to Charts to Determine Market Bottom” The all-time favourite article where I shared how I determined it was time to buy stocks published early April 2020
“Oil at 21 Yrs Low || SARS vs COVID-19” published on 19th April 2020, 1 day prior to the bottoming of the oil price where we mentioned the bottom is close
“Stocks That Did Not Fall in the Last Trade War & What I Will Do Next” published on early May 2020 on how I planned to position for the possible resurgence of Trade War
As much as I attempt to predict the market, I can’t. I am not always right. Although I managed to buy at the 2009 sub-prime bottom (my 2009 purchase), wrote the above articles from my experience on how to do it “accurately”, I don’t credit that to my “diligence.” Somehow, luck was with me. I was blessed. At that point in time, I had the same worries. What if I was wrong? What if the market continues to tank further?
We shouldn’t be overly focused on buying at the ultimate bottom price but to get the low hanging fruits first. Slowly bite our way to bigger bargains. Hence, to buy in tranches. The last thing you want to do is to listen to all the “noise” and base your decisions of buying and selling on it such as the example on oil price below:
It has been a month since the news article above. An upsurge in negative headlines like this that spook fear typically points to the bottoming out of the market. Again, not trying to predict the market but just showing examples that great deals are only during times where fear is most present. Otherwise, I doubt anyone wants to sell at low prices.
It pays to be a contrarian, buying when everyone else is selling.
The famous quote by Warren Buffett to be “Fearful when others are greedy and greedy when others are fearful” is easier said than done.
Often, emotions play a larger role than rationality. We see greed and fear in play as most are comfortable buying when the market is going up and refrain from buying when market tanks.
What to do if I bought shares recently and it crashes another 50% or more?
A hypothetical study by Charles Schwab Corporation shows that investing early is better than saving in cash, and more effective than “predicting the market” (i.e. buying and selling stocks based on market swings) in the long run .
Interesting facts from another study about of Bull & Bear market .
On average, we lose about 36% in a bear market.
On average, we gain about 112% in a bull market.
Since 1928, there have been 25 bear markets and 26 bull markets for the S&P. More importantly, over the long run, stocks rose.
After World War 2, there were lesser bear markets. The frequency reduced from once every 1.4 years to once every 5.7 years.
Definitely, buying at the lowest price reaps the best rewards. However, buying at the wrong time but investing early still makes better returns than keeping cash!!
Social media comments blasting Warren Buffett
Recently, I saw comments in social media blasting Warren Buffett for losing billions during the stock market rout. Articles like the one below is common on news site reported on 4th May 2020.
There were similar headlines back in Feb 2009.
Another similar report weeks later (March 2009):
As at Feb 2020, his net worth is $90.3billion. (Although it is in May 2020 now and his net worth probably fell further, but you get the point.)
Investing in stocks doesn’t mean you won’t lose money. It is part and parcel as history have shown it is bound to happen. History have also shown the market always recovers. Certain stocks in my portfolio are in the red as well but I am holding on to it. Investing is not gambling. It is about buying great companies, having the best odds in your favour. Building wealth is not an overnight thing (leaving out striking the lottery etc.) and it takes time. In my opinion, investing is an important skill and is as important as studying for a degree. It will be best for you to master it at a young age.
During the 2018 Berkshire Hathaway shareholder meeting, Warren Buffett shared on how to turn $10,000 into $51 million over the course of years through compounding .
If you are young and time is on your side, you can witness the power of compounding for yourself as I have witnessed it in my own portfolio.
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.
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