I am sure if you have been investing long enough, you would have known the feeling of ‘loss’ – or more specifically, losing a lot of money – whatever that amount may be (correction, volatility.. whatever you call it). I always think this is important. After all this is how we learn right?
So what does that bring us to? Well imagine that you are going on a long arduous trip (eg. to the top of Mount Everest, to the moon….etc), and you are given a choice to pack the most essential and lightest items you can ever have into a bag. Say you are given a choice of only putting less than 10 items in the bag. What would you put? Let me see, probably for survival- water, dry food, clothes, medicine, something utilitarian like compass, a hardy watch or fail safe touch light etc.
Now imagine that the bag is like your portfolio. You being yourself, should know yourself better right? What can you put in that bag that you are very sure will enable ‘you’ to survive a market downturn? Think of the stock as a watch you would bring (ok – not the Apple Watch – the traditional kind, like Casio, Swatch, Seiko, Tag Heuer, Patek Philippe, TWC, Rolex, etc). What kind of watch will you bring? A cheap $10 watch you bought at the Pasar Malam or something trustworthy, sturdy, scratch proof like a Seiko or Tag? Patek Philippe & Rolex seems a bit too extravagant.
Something that is trust worthy without being ridiculously expensive…
I think with each bear market, we all learn something – some can be very expensive lessons. I think rather than calculating the paper gains or losses (or dividends), it is more worthwhile to think about what we have learned through our investing journey (so that we can be better prepared for the arduous ‘ journey).
- 2007 – 2009
I remember during 2007- 2009, even though I did not invest a lot (as compared to now), the feeling of fear is much greater.
I remember reading the book “How to Make Money in Stocks” by William J O Neil. Although there are some pointers on finding companies with good fundamentals, I feel that in general it deals more with momentum investing. The author came up with the two word acronym “CAN SLIM”. Each letter in CAN SLIM stands for one of the seven basic fundamentals of selecting outstanding stocks. C = Current Quarterly Earnings per Share; A = Annual Earnings Increase; N= New Products, New management, New Highs; S = Supply and Demand – Shares Outstanding Plus Big Volume Demand; L = Leader or Laggard; I = Institutional Sponsorship; M = Market Directions. There is an element of studying the price consolidation & volume of trades.
First of all I do not think one method is better than the other. However I felt that this method is not suitable for me, as I need to spend more time studying the trading volume & technical signs. On the plus side, I am more agile and can go in and out more often.
I remembered near the end of 2011, my portfolio wasn’t looking very nice (read here). I basically held on to what I had, and added on new companies which I deemed better.
My selection of companies was not very defined yet. I wasn’t reading much into the fundamentals of the companies (which I have invested in). Hence again, the sense of fear is big. Nevertheless, I tend to buy the well know blue chips then eg. SIA, Golden Agri, SMRT & CapitaLand. Although prices were falling, I am sure the companies would unlikely go bust. However, the difference this time is I did not trade much. I did not sell due to panic or chase after the upward trending prices.
From 2011 to recently, I have started reading and studying more into the fundamentals and narratives of the companies, and from time to time tried to do some simple calculations on the intrinsic values or trailing PEGs of these companies. Consequently, the companies I bought have deviated from the well know big chips. Some are even small caps which are recently listed on the Catalist eg. ISOTeam.
This time compared to all the previous years, the amount I have invested is far larger. Consequently the paper loss when the index is at its lowest was the worst I had. Also I have always felt that my war chest is too small for my liking. In the manner as I had done in 2011, I did not sell any shares (well, technically I did sell for some to lock in profit rather than due to fear- such as Sun Hung Kai & CapitaLand, as I felt that the bull run in China and Hong Kong markets was unsustainable).
There is still fear, but not as much (considering the amount which I have invested). Fear came from some of the companies which I am holding such as Golden Agri (due to its high leverage, relatively mature plantation age, sanctions from RSPO and poor palm oil industry outlook – read here), and Sarine Technologies (due to a possible change in the diamond industry – read here).
However, for most part of the bear market, I felt that most of the companies I am holding have low or no leverage. For some, their recent earning reports are ok. So the sense of fear as compared to the feeling I had in 2007-09 and 2011 is different. I reckon I felt more indifferent.
Also I felt that the amount of time I held on to the shares of most of these companies are relatively short. In truth, companies need many years to grow and perform – their value just don’t fluctuate day by day, hour by hour. Perhaps we will see more pain in the coming months (while others have already bemoan that the ‘ship has left the port’, and the tide has changed – market is now in an uptrend). Well we never know.
I think the common thread I read about investing among the ‘greats’ is to find strong companies at great prices – be it in a bear or bull market. Eg. Even if you can foresee that the tech sector in China is going to boom (years back), you won’t make much (and may probably lose more) if you invest in the lousy tech firms.
So I guess we all have to keep finding.