Remember that money is made during pessimism
- Original Post from BPWLC BLOG

In the last few months, the stocks markets in many regions were reeling down from their highs around April. Several months have passed and many investors seemed to have distanced themselves from the stock market. Some even vowed not to come back again. Just a few days ago, the STI hit below 2800. it had fallen more than 20% from its recent high, putting it in a bear regime. But, then the question is why so downbeat when these may be  opportunities that we can buy back stocks that we had sold off during the highs. If the stock prices did not drop and remains high, it would be impossible to pick up the stocks again. Yes psychologically, we tend to be more pessimistic when the market goes down and less optimistic when the market goes up. But isn’t it that we have often been told and be reminded that stocks can go up and down. It’s only that we accept that there is volatility and willing to embrace this volatility that we will become more emotionally detached when dealing with stocks. Frankly, it’s not easy in the beginning of my investing journey, but over the many years of investing, after going through many cycles of ups and downs, I start to detach emotionally from the stock market volatility as I know I have no control over it. I just continue to focus on my long-term goals irrespective of the market conditions. Instead of crying over the losses, we should focus our attention on things that we can control, such as doing our day jobs, completing our projects and working on something productive and enlightening. That’s essentially why I am never in trading and, very embarrassingly, I never have the first-hand news of the stock market. And, very certainly, I admit that I can never be a good trader
To me, stock investing should not be a standalone activity. It should be  part of personal finance that also embraces money management. We should ensure that we have sufficient liquidity such that we are not be put into a forced-sale situation or be missing buying opportunities simply because we do not have sufficient funds. Just 2 day ago, it was reported on The Straits Times that $40b have been pulled out fom the emerging market. Certainly Singapore is one of the discarded victims as well. As mentioned in my earlier post, due to the relatively small size of our stock market (and in fact regionally), just taking away a few billions dollars off the stock market could bring down our stock index drastically. Yes, there is going to be a technical recesson ahead. Yes, the China economy is not performing well. Yes, the currencies of our neighbours are hitting historical lows, Yes, the writing is on the wall that US is going to hike the interest rate. But then, aren’t these yesterday’s news that have already been priced in the stock index. So while some funds might have left us, opportunities may present themselves such that by the time when funds do come back again, we can ride on the rising tide. Of course, I have to qualify that I do not mean that we should buy aggressively starting today. What I mean is that after all these brawls, isn’t it time to open up our eyes to look at the stock market again? Frankly, I am not expecting that the stock market is going to turn sharply in the next 3 months or so, or perhaps not even two years down the road, given so many issues that we have no control of. Neither do I dare say that this is the lowest point and that the stock market cannot go further down. What I am saying is that to make significant money, we have to buy during times when there is extensive pessimism when everybody is looking away from the stock market, and sell during euphoria when even those who have never been in the stock market are in it by herds and droves, not the other round. Perhaps, look back into your stock portfolio now and try to recall when you had bought and sold those stocks that you had made big money (at least percentage wise). Very likely, those that you had made big money were bought during bad times and sold during euphoria, unless you are a big-time speculator trading $100k each time without a blink of your eyes.
Also read:
$STI(^STI) – Is it better to be on selling mode now?
(Brennen Pak has been a stock investor for more than 26 years. He is the Principal Trainer of BP Wealth Learning Centre LLP. He is the author of the book “Building Wealth Together Through Stocks.”) – The ebook version may be purchased via www.investingnote.com.
 
 

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8 comments
Stockcham

Thanks for sharing Bro Brennen! Nice write up.

gsyeo

Write a comment...Yes you are right.

BrennenPak

Exactly, always have some money standby. Never regret having liquidity.

shanison

Reply to @BrennenPak : Thanks for the tip=) Always keep some spare cash and get prepared for good opportunities.

BrennenPak

The market is always full of surprises. It roars back everybody feels that it is hopeless and it tumbles when everybody feel hopeful.

shanison

Reply to @BrennenPak : Market can always give you surprise. So we should buy when we feel everybody is desperate, sell when everybody is fearful. Be calm and trade carefully.

BrennenPak

I wrote this on 2 Oct, and within 5 trading days, the market went up like crazy. Market is irrational sometimes.

shanison

Reply to @BrennenPak : Yes, market is irrational. That's why it is so hard to trade=) Accumulate in weakness sounds better.


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Don’t make the same mistake that I made 2 decades ago
- Original Post from BPWLC BLOG

For the calendar year 2018, the Straits Times Index (STI) retreated from 3400.91 at the close of Year 2017 to 3068.76 at the close of Year 2018. The absolute fall for the calendar year 2018 was more than 10%. It had defied the predictions of many analysts. Many of them were generally bullish at the beginning of Year 2018. By today, on the 1st day of trading for Year 2019, it retreated another nearly 30 points, -29.87 (to be exact). Surely, many players have been slowly but surely cashed out of the market as the market retreated. Even those with cash to spare were not willing to get into the market. Just as we know in economics, there were more sellers than buyers for year 2018. That, precisely, was the reason for the market to fall.


With each market fall, it flushes out some players. The unfortunate thing is market retreats and advances are never linear with time. They are never exactly predictable, especially over a longer of period of 6 months and longer. Market volatilities are due to the changing political, economic and social conditions that are thrown out into the market from time to time. Frankly who is able to predict what an influential political figure will say or act next week or next month or next year. Most of the rise and falls were due to some smart Alex out there trying to anticipate the moves of these people before things really happen. Unfortunately, time and again, it almost always sucks in new players and throw out some others as the market rise and falls in a falling trend. Many players, who were unable to take the market gyrations would have cashed out of the market, and stayed in cash in hope to fight for another day.


Let me say this. Market gyrations are not an easy thing to stomach, especially for those who are very watchful of the market movements. In fact, many are willing to take losses and leave the market instead of riding through the market ups and downs as sentiments get hazy. Along with the falling market, I am quite sure a number of us have this floating thought “I would rather take a small return of even 1-2% to protect my capital than to see my capital dwindling with time.” That precisely became the guiding principle that drives their action. So, instead of staying liquid after cashing out, they choose to put the money into more certain investments. They gladly put their money in longer term plans, such as fixed deposits and Singapore government bonds and even insurance plans that can only yield rewards (if there really are any), at least, 1, 2 years or even a few years down the road. I mention this because I happened to see some posts in social media lately. Some people seemed to have decided to take this course of action. Frankly, this was exactly the mistake that I made 20 years ago.


STI from January 1997 to December 1999

For at least 2-3 years leading to the peak of the Asian Financial Crisis, the market had already been retreating. As a rookie who had never seen a long-drawn market retreat, I was holding out very hard in hope that the market would turn around. It never did. It was down and down. Then, suddenly, the stock market fall started to gain momentum, as the Asian Financial Crises started to bite. That was the time I caved in and sold out. Instead of holding the much smaller sum in cash, I put them in fixed deposits. That appeared to be the wisest thing to do at that time. Between a steep falling stock market and a high fixed deposit (FD) rate of 5%, it was almost a no-brainer to put the money in FDs. The reason for the relatively high rate was that liquidity was drying up as the neighboring countries were battling to stamp the falling value of their currencies due to massive currency outflow. Along with the falling currencies, stock markets were retreating at an accelerated pace. My naive thinking was this – one year is not a long time, and hopefully by then, the market would be calm again for us to re-invest. Meanwhile, we should let the money work hard for us by channeling it to an avenue that yield the highest possible return.


It was a wrong move. While the cash was still in the FDs, the market was making a huge turn around. For the next three months (or around end 1998) after the bottom, it gained 50% (In fact, 50% was an understatement) – see diagram. What the hack! I had effectively traded off a 50% gain within 3 months for a mere 5% gain in a year down the road. From the low of 805 in September 1998, it zoomed all the way to around 1500 by the end of 1998. Then, it gained another 50% from 1500 in the year that followed. So, by end of 1999, it was at 2,500, recovering all the losses that it incurred in the previous few years.


What was the lessons here? Cash is king during a crisis. So long as it is not invested, cash remains as cash. Cash is no longer the king when the crisis is over. Count ourselves lucky if we had sold out before a huge market fall. But we need to re-invest at the right time to make significant gains. In other words, we need to be right twice, to time the selling correctly and to time the buyback correctly. When it is too late, just ride through. It’s the matter of the survival of the fittest. In fact, consider to invest more if you have the means. You may have the last laugh.

Disclaimer – The above pointers are based on the writer’s personal experience. They do not serve as an advice or recommendation for readers to buy into or sell out of the market. Everyone should do their homework before they buy or sell any securities. All investments carry risks.


Brennen has been investing in the stock market for 30
years. He trains occasionally and is a managing partner for BP Wealth Learning
Centre. He is the instructor for two online courses on InvestingNote – Value
Investing: The Essential Guide and Value Investing: The Ultimate Guide. He is
also the author of the book – “Building Wealth Together Through Stocks” which
is available in both soft and hardcopy.


$STI(^STI.IN)

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Very often, we hear of people saying that if the $STI(^STI) sinks to 1,800, they will get into the stock market and buy aggressively. But for the STI to go to that level, the situation must be extremely pessimistic. These articles were taken from The Straits Times & The Business Times during the peak of the global financial crisis between September 2008 and March 2009. If one were to see this type of news almost everyday for a few months, I am not sure if we have the mental fortitude to invest aggressively. At most we buy a little bit to 'test' the market, thinking that the market might sink further. The emotional behavior in a midst of a crisis and that during a non-crisis is very different in the two situations.

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Just stay on course
- Original Post from BPWLC BLOG

In the blink of our eyes, we are at the half-way mark of calendar year 2016. So, where are we now? The $STI(^STI) Index closed at 2882.73 on 31 Dec 2015, and today it closed at 2840.93, a difference of 41.8 points down (or a loss of about 1.5%) since the beginning of the year. After battling with the Chinese stock market rout in early part of the year, the possibility of interest hike and, very recently, the Britain exit from EU or Brexit in short, we are still more or less where we were since the beginning of the year.  So, generally speaking, the market has been quite resilient.
In fact, the bonds and perpetuals that were raised in the last few months were several times oversubscribed, and many companies actually raised more debts than originally planned. This shows that there is indeed a lot of liquidity at the sidelined waiting to pounce on opportunities that may surface from time to time.
Even in the latest happening that led to Britain, the world’s 5th largest economy, having to break away from the European Union (EU), it did not impose any real threat after one to two days of market disorientation. In a situation when central bankers are prepared to do whatever it takes to stabilise the market, it probably pays to be in the market and not to sell out prematurely. It is like playing football with the referee on our side. The outcome is slightly biased favouring those who hang on.
 So, what do we really learnt from this episode? During times when the market gyrations are expected to be significantly violent, all we need is to stay calm and rationally think through how to react (or even not to react) to the changing situation going forward. Usually, it is the calmness that helped us think rationally. Furthermore, there is ‘Hands of God’ (the central bankers) a term used by Diego Maradona in 1986 world cup to help along. Suppose when we go into a panic and sell out on Friday, 24 June, it is very certainly that one is not able to buy back the stocks that they had sold without incurring some additional costs. Today may be the end of the 1st half of the year, and there is a possibility that there was some kind of window addressing that drove the ST index up. Of course, there can be profit taking in early July. However, the way I see it, the depth of the market rise appeared to be more than just window dressing as the market anticipates that interest rate hike may take a back-seat. Also, almost certainly, there will be stock market volatility ahead as the breakaway of Britain may result in more uncertainties brewing in the EU. And, perhaps, some black-swan events can pop up unexpectedly. But these happenings are not something that we can control and there is no point to lose our sleep over it. What we really can do is to stay on course in our investing journey. Many stock market routs actually got diffused over time. As new ones come along, the old ones get blurred out of the picture.
After having gone through so many ups and downs of the stock market during all these years, I find that most of the time, we do not need to be too reactive to the market gyrations.  The market may have gone crazy momentarily, but we really do not have to go along with it. In fact, there is more to lose, not only financially but also mentally when we react too much to the market gyrations. Unless that we hold on stocks that totally lack fundamentals, the market normally heals itself after some time. Perhaps, we should treat such isolated events as if the stock market is offering some discounts, just like the supermarkets do from time to time. Once the discount period is over, we find ourselves much better off than we originally were.
To me, stay on a long-term course is the best policy.
Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

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By today, we should have more or less recovered from the #brexit. As I mentioned in my blog, the situation should be quite contained for stocks in general except for those companies which are exposed directly to the sterling pounds. So, it means that the Brexit has insignificant impact on the local stocks in general. But remember, part of the advances in these two days could also be the mid-year window dressing at play. Probably expect to see a retreat by early July or even tomorrow. $STI(^STI)

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Banks may be cheap now, but…
- Original Post from BPWLC BLOG

Cash is king. Yes, during financial turmoil like this when stock markets all over the world are sinking, having cash is the key. According to $STI(^STI) The Straits Times on 20 January 2016, just last year alone, about US$735 billion left emerging market. China accounted for $676 billion which formed the bulk of the outflow. Similarly, the fund inflow last year was about US$231 billion against US$1.2 billion per year from 2010 to 2014.
On the corporate front, banks are natural victims during times of liquidity crunch too. Most bank share prices have sunk more than 30% from their recent high when the ST index hit 3500. Right now, banks are trading near or below their book value (BV). Exactly, five months ago, I had written in my blog that there was always a possibility that banks might start to raise funds through rights issue if the turmoil persists. So far, none of the banks have raised alarm, but still it is possible if banks deem it fit to do so. After all, there were past precedence of fund raising activities during financial crises. For example, $DBS(D05) raised S$4.2b in end 2008 through 1-2 rights issue. Similarly, $OCBC Bank(O39) and $UOB(U11) raised $1 billion each through preference shares issue. In a similar way, during Asian financial crisis in 1998, DBS acquired the POSB. Looking ahead, it is still a possibility especially during such times when other banks or companies may fall into bad times. Such huge fund raising activities can come in handy for future acquisitions.
Brennen has been investing in the stock market for 26 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

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