2+1 critical items that one must always have during market downturn

Well with a no. of markets at all time high, it is inevitable to fear of a possible crash. Some of us can still remember the crash of 2007/08.

So what can one do if there is indeed a crash. Well Options Trading is one possibility (let’s short the market or individual stocks).

Every investor would love to be able to sidestep the next correction or bear market. We’re averse to losses. So much so that everyone becomes infatuated with predicting the next market downturn. Instead of constantly trying to guess which direction the next 10-20% move in the market will be, we would be better served by accepting losses with equanimity and having a plan in place to deal with the inevitable draw-downs.

Hence, it came as no surpise that I would  prefer a more passive method. Holding a war chest and having a list of great companies ready. The 2 things one must have during a downturn. The only issue is predicting the downturn.

As the years go by, the amount of money I invest in stocks increases. The magnitude of my un-realized gains and losses has consequently increased as well. In the past, I used to get edgy over losses of a few hundreds. Nowadays, the daily fluctuations are in the thousands. Overtime, this has a desensitizing effect. Could be a good thing / could be a bad thing. I get to experience bigger and bigger losses, and some of these do bounce back to profit (of course some never).

Having said that, having seen the wild market swings in 2007 – 2009, the volatility nowadays is much lesser. You need a very strong heart and mind to invest during that period. 2011 was also a wild year. The monetary policies of numerous nations have in a way acted as a counter balance to any free market movements. Even the Federal Reserve is cautious and has made it clear that they will slowly raise the interest rates. The past fear of the financial crisis still lingers.

Frankly, the problems in the world economy have not been solved. National debt of US is a ticking time bomb, EU is still fragile, Russia’s economy is in a mess, China’s economy has its slowest expansion ever, and Japanese are not spending. However, I think the key word here again is “desensitized”. I am bored of reading about the Greece crisis (a case of crying wolf) and about a slump in commodities. Even the recent MERS outbreak in South Korea seems like a repeat of SARS (although it is less infectious than SARS). If you read more, the recent Chinese market surge and plunge, property glut and oil price slump soon becomes old news.

Indeed, it has been an in-active period for me recently (in terms of investing). I did not spend a lot of time researching companies. I have read buy calls for Super Group (read here) and Riverstone (read here), and break down of Super Group ROE (read here). Bought a teeny bit of Super Group stocks (before the buy calls).

I am hoping that Colex share prices drop, so that I can buy more of it. Thought of selling Riverstone given the hype over MERS and stronger USD (but felt that the company’s fundamental is intact, and this company is a keeper) , as well as selling CapitaLand given the hype over the surging Chinese markets (but think I missed the boat). Sold Sun Hung Kai Properties earlier before prices plunge further. Given a thought on buying Japan Foods but felt that prices are still too high.

Read about articles describing if it is a great time to pick up cheap blue chips in the Singapore market, such as Noble & Genting; while stating the obvious that they were down due to Iceberg’s & Muddy Water reports and their bad financial results, etc.

Read about the active share buy backs by some of the local companies (notably Noble and Genting — again).

However nothing hit my buy prices for my watch list of stocks. So the last thing I probably need is patience.