Simple strategy for this market correction

The market has been slowly drifting downwards after the initial knee jerk upward spike after the ‘black Monday” on 24 Aug 2015. So what should one do?

Reading the posts from other bloggers, I know I am not the only one with reds in my portfolio.

For me, my investment strategy has always been to source for under-valued strong fundamental stocks and to slowly reduce the weightage of the weaker fundamental stocks (don’t think I can do that nowadays).

In general, my weaker stocks have been under-performing for years (eg. Golden Agri, SMRT and SIA). Golden Agri has surprised (on the down side) for many years, just when I thought it can’t get any lower, it surprised me again.

• Doing Nothing

Basically for me my plan is in place and there is likely nothing that I need to do or should be doing at this point.

“As far as you are concerned, the stock market does not exist. Ignore it.”

“Stop trying to predict the direction of the stock market, the economy, interest rates, or elections.”

Warren Buffett

• Don’t dwell too much into it

Market corrections happen as part of a normal stock market cycle. Like rain that comes every so often. At the end of the day, the number of stocks I am holding is still the same – just that the price of each (or most of it) dropped. The business behind each stock should hopefully remain the same or become better.

Come to think of it, even though some of the companies reported good financial results, their stock prices for the moment do not reflect that. Eg. Wonder why ISOTeam stock price drifted down (down 5.36% today) after they reported good FY2015 results on 28 Aug 2015 (34.1% rise in profit for FY2015). Huh?

The causes are many and often some major event is the trigger (eg. China currency devaluation & economy slowdown, impending interest rate hike in Sept, etc). Sometimes the entire stock market is impacted, other times only certain sectors. There’s not much an individual investor can or should do to try to counteract these periodic events. However, like the sun that comes out after the rain, the stock market will continue its relentless march upwards eventually (maybe after a few years).

• Ensure sufficient liquidity

For the moment, I am more keen in ensuring I have enough liquidity / war-chest. So that I do not need to worry about selling my stocks to fund my on going needs and cash flow.

• Review companies in my portfolio

I will probably take some time to review my portfolio soon, to check on their fundamentals (esp. keep a look out on companies which has an exponential increase in debt or sudden drop in profitability margins- ROE & ROIC).

• Ignore Media Hype

“We’ve long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.” Warren Buffett

With the gloom and doom in the recent headlines, it can be quite unnerving for some of us.

There may be hard data which are useful that can be found in these news, but more often than not, it is more noise than useful information, more entertainment and hype than hard, substantive news. Rather than CNBC, nowadays I will read the forum posts in Value Buddies or articles in the Company Disclosure in SGX. After a long while, I finally saw a new post in the forum on Super Group (after it dropped below $1).

Well with all due respect, I would probably not hear from Marc ‘Dr Doom’ Faber (The Gloom, Boom & Doom Report) or Jim Cramer anytime soon.

• Review Portfolio Risk

If you have been losing sleep or feeling overly fearful, maybe it is because you have taken more risk than you can manage. Over leverage? Perhaps it’s time to revisit your asset allocation and your financial plan once things settle down.

I have been feeling the ‘heat’ so to speak – and feel that at the moment I am happy with amount I have invested. Will not be adding more in the near future. Also I do not believe in trading in margins, to leverage. To only invest with the cash I have.

 

 

Above all – To stay calm and revisit my financial plan for a roadmap on what to do, if anything. Thinking how to spend my long weekend next week :p

Shall leave you with this. Click here.