Friday, March 20, 2020

Random thoughts: Reflection of bear market investing.

Just a log to write down my thoughts. None of these are analysis stuff, just my thinking 

1) I cannot prepare for both a bull and a bear, or can I? I am kind of preparing for a bear, I hold 60% cash and keep telling myself not to go below it unless there is a correction (10%), I wasn't even thinking about bear a month ago. 

On hindsight, for those who took advantage of a bull, they would have piled up on the investments on their way up. But, as u sell you way up, buy high and sell higher is risky business. If u refuse to buy high and sell higher, u restrict your gains in a bull. 

U could also have offload bulk of your winnings earlier, say when market just correct 10 percent and now u huat, bull I win, bear I win. But that is easier said than done, it"s almost like striking lottery. Let us not forget the last 2 years are full of false bears, and a panic of losing out. I am not sure if anyone can convincingly sell out. Also, no one knows if a sell out decision is right or wrong except on hindsight.

Now, I have took the middle approach of investing in tranches... That means as market increase, I sell more. (Was 80 percent cash at one point of time), as market drops, I buy.

However, a company could already drop by 20 to 40 percent because of it"s industry cycle and not due to general market fall. So, I continue to buy when I see such companies, just that I am mindful of the cash level of portfolio. This bear shows me, even those which has already went south by 50 percent, can go further south by another 50 percent. So having the cash to accumulate at 80 percent discount is rather important. Your cost of purchase went down 80 percent, and the cost of AV. Down becomes a lot cheaper. 

As I buy, and accumulate shares, drawing down my cash, CPFand Srs fund on a almost of a daily basis, I realise I will slowly sell when market rebounds upwards ( risk management as the size of investment will be smaller, with better margin of safety), doing this will prepare for bear, but reduce the profits if bull returns. 
* I have no such chance yet to do what I plan. 

Assuming100 percent of your counters fall at least 20 - 25 percent, and 75 percent of your counters fall 35 - 45 percent and 50 percent of your portfolio fall 50 - 60 percent eventually. 

U cannot be more than 30 percent vested before bear starts. Is this an easy call when u see all your friends and bloggers say u are hogging too much money and they are making a splash? 

Also, when u are only 30 percent vested, are u going to sell further ??  My best investment before this covid 19 is MIT and A REIT, MIT is still above waters but A REIT is already in red, (SMOL, if u are reading this, u will say see, never sell), but when u sell to increase cash and left only 30 percent, will u really continue to sell? 

Hence, I think, many theories doesn't really work in real life circumstances. I have no regrets buying and extending my loss, because I believe I could not have done better with portfolio cash level manGement. I could have done better with my entry and exit. But that is second part.

2) I didn't keep to rule of 20 percent fall to accumulate. I bought QAF at 76 cents, just weeks before they announce positive profits guidance. Within days, I sit on 15 percent gains. When the correction starts, I accumulate more at 78 cents, thinking what a steal it is, as I dun think bakery business is going to be badly affected by Covid virus. Supermarket is still doing brisk business. Bread is a staple. 

I could have save some ammo and average down at more attractive price. The same with DFIH, althought it is just a few percentage point off 20 percent. 

As I drawn down my cash, I ask myself to pull the trigger with bigger drop of 25 percent or even 30 percent. That seems to work better. 

Hence, if I ever get a chance at bear again , I will do 20.percent, 25 percent and 30 percent drop accumulation for companies with business visibility and 25 percent and 30 percent drop accumulation with hazy business visibility. 

3) Business analysis is important, as it gives u conviction that the company can survive. Of course, business conviction is based on assumptions and projections, but price fall is not a business assumption. 

What I am fearful, I ask myself, if I get it wrong, do I accept zero, permance loss. What is the odd of that happening based on your analysis. 

Once I have the answer, I realise is still have the balls to squeeze the trigger to buy when the counter has fallen some 50 percent ...

I bought first tranch when it fell 30 percent, and it feel another further 30 percent in 2 days and scare the shit out of me.

I ask myself to calmly think through whatever factors I knew affect the stock. I bought more.

For transparency, that stock is first REIT. I believe the parent company Lippo and Siloam hospital have the financial strength to survive the currency run on rupiah, which is the main factor costing the fall. 

As for 2021 renewal of contracts, those contracts not pegged to SGD doesn't mean they no longer need to pay rent. Assuming they need not pay rent, the loss is 25 percent revenue for the 1 flagship hospital and 3 mature hospitals ... But the fall in price is... ... 50.percent from my purchase price of 96 cents and 70 percent from its peak. Ridiculous.

If they no longer pay in sGD means savings of 30 percent, the fall in revenue for 2021 will be even smaller. 

Ok. That's all for my thoughts.

Finally, u just need to be lucky in stocks. My friend who didn't buy anything until now. Yes the best stock performance than 90.percent of investors lol


9 comments:

  1. Sillyinvestor,

    To asnwer your question, there are 2 aspects to it:

    1) At individual stock level

    When I buy, I expect the price to go up? Why buy when I think prices will drop???

    Simiarly, when I sell, I am fearing if don't sell now, price will go lower... Tio bo?

    This has nothing to do with how much cash in my portfolio. Should it?


    2) At portfolio level

    This is rebalancing of risks. Part of overall risk management.

    If I believe this is late spring or summer time, I'll have no problem being 100% vested.

    But if I believe its autumn season, I'll start taking money off the table. Raise more cash.

    Yes, even if I suspect markets will go up a little bit more... Why be greedy and go for that extra 10% gains and risk getting trapped when sentiments turn?

    As you can see from the past 2 weeks, it can change very quickly!!!



    You were in a GREAT position going into this meltdown with 60% cash.

    Its quite clear where you mess up. And you know it.

    But then again, who knew this one will be he FASTEST stock market decline for the US since the Great Depression?

    The silver lining is IF and IF we survive this "test", all other bear markets will pale in comparison.

    I've survived 2000 and 2008. So this plunge I'm prepared


    The only bear market that keeps me awake is the Asian Financial Crisis during 97. That's when STI plunged below 1000...

    I haven't started my "investment" journey yet. So I've not built up a natural resistance to such a severe winter...


    P.S. Family safe first

    2nd keep the day job

    Then fuss with "good to have" things like investment gains

    ReplyDelete
    Replies
    1. Smol,

      The thing is except on hindsight, who is to say 4000 or 5000 is not possible.

      1 month ago, would anyone think we are flirting with 40 percent bear ?

      40 percent bear, I still have ammo to navigate, 3400 bull, I still have something of my portfolio to gain.

      The rest, personally I think is either dumb luck or a stroke of genius. As I say in my post, anyone who start investing now Beats all find managers. Lol

      But u are right, family first. Job second. Lucky I never quick hand quick leg throw letter. Otherwise, I will be eating grass now instead of thinking what to buy...

      Hey, how are u getting on with your trades.

      Indeed, pretty surreal to me that Fear index has already surpassed GFC. And first time I see market crash dun take breather

      Delete
    2. Sillyinvestor,

      Yes, there are.

      Me, oily man, and quite a few others who prepared long, long, in advanced. And not bothered when others are doing the opposite.

      Eh, you don't keep 60% cash if its just for a possible plain vanilla -20% bear market, and definitely not for a -10 correction...

      I think you may want to re-calibrate here a bit?


      I'm pleasantly surprised those of us who had been through SRAs did not immediately pare down their portfolios during Janauary...

      Hello, how much did our STI tanked during 2003?

      What's the point of experience if its just first year experience times 30 years?


      I'm doing good.

      Made some kopi money taking the opposite position from you all.


      P.S. You may want to figure out whether investing/trading is a team sports or individual game like chess or golf.

      Delete
    3. Hi SmOL,

      I think I get what u are trying to say, let's see:

      When we go for the prize, we dun get distracted. When we go for bear, we go for the throat. All of us have different risk reward profile and wants but a 10 percent correction is laughable.

      Point taken about that.
      -+++
      Even if it's a cute small bear 20 percent, I would want some of it. That's why I was buying..

      Personally, the stagger and mangnitude is up to us... To adjust ...

      As for team sport or indivial game, definitely individual

      Granted as I might tried to understand what u say, I believe I have also filter away those I think are useless to me. So everyone walk their path, and reflect and do better

      Btw... I didn't hoot 60 percent cash on a 20 percent bear.

      Its a 30 percent bear and I still have half of it to play around for a 30 - 40 percent bear and most probable run out when it hits 50 percent.

      U might think that is stupid, why not hoot at 40 percent and 50 percent then 60, who go hoot at 20?

      Maybe u are right, but what done cannot be undone. Selling all like is... ... Bo Liao..

      I have my own success criteria and also failure criteria to guage my own performance, I will only know if u miss up or not when,

      I dun have any money to take advantage of 50 percent or 60 percent fall.

      70 percent fall I let it be...

      The counters I buy go kaput.

      Those are failure criteria.

      My success criteria can only be found out when this thing blew over, do I get at least 30 percent gain from portfolio with 6-7 percent yield ...

      Then it's back to cash at hand again

      Delete
    4. Sillyinvestor,

      Trust you to get it ;)

      You teach young children; I coach working adults.


      The highlights of what you say:
      -------------------------------

      1. "When we go for the prize, we dun get distracted."

      2. "All of us have different risk reward profile"

      3. "I believe I have also filter away those I think are useless to me"

      4. "everyone walk their path"

      5. "I have my own success criteria"


      What you do in reality:
      -----------------------

      a) "Is this an easy call when u see all your friends and bloggers say u are hogging too much money and they are making a splash?"

      b) "My friend who didn't buy anything until now. Yes the best stock performance than 90.percent of investors lol"


      Only you can resolve the dissonance between what you say and what you "do".

      What others say or do - how easily are you affected by them? Remember the panic buying of groceries?

      I know some US institutional money managers deliberately move their offices away from New York so as not to be influenced by Wall Street's group think...

      Some don't even listen to talking heads at Bloomberg or CNBC. They generate their own research.


      Your friend who "outperforms" you by not buying anything until now. Its luck for him, but skill for you?

      Even if he outperforms 90% of retail "investors", what has that got to do with your own journey or recent entries?

      When you question your existing plan and recent entries, do watch you are not unconsciouly doing so in order to "beat" your friend.



      Delete
  2. Hi SmOL,

    I am especially attracted to the word "young" adult. Thanks dude.

    The just vested is meant as a poke, but also as humility, we do the best we plan, but things dun go according to plan, me not affected, I really my 2 different friends well, it's a good time 5o build a portfolio in a bear market, may they not make bull mistakes. They doing well has nothing to do with me, I rather they do well than badly.

    Regarding the smaller than 20 percent portfolio, that is a bit tougher to ignore.

    Imagine having no portfolio with the bull run...

    Anyway, thanks for commenting, I think our conversation is useful/entertaining for readers,

    ReplyDelete
  3. Hi SI,

    Buying too early could be due to the following:

    (1) FOMO mentality
    (2) Blind optimism
    (3) Taking a leaf from historical events, taking a calculated risk

    We need to ask ourselves which we belong to. If it is S/N 3, then the lesson for us is that history does not repeat itself in the same way. I referenced the SARS market behaviour and decided my initial entries. You having 12% in the red is actually better than mine! So take heart. :) I accept my wrong judgment and have Plan B in place. Now confirm the situation is worse than SARS, so I reference the individual stock's GFC price range and PE. Fundamentals don't work when fear factor is high. I look that those figures to see just how much fear could drive the stock price down and then decide (throw dart actually!) agar agar what price to scale in some more.

    I have an ex-banker friend who asked me how it makes sense scaling in, buying when the price is dropping and having the plan to buy more when it drops further? It puzzles him that if I plan for it to drop some more, I still bought in the first place?!? That's an intriguing question and I gave him an answer from a technical angle, blah blah blah. Deep down in my heart, I know that it is that FOMO mindset that is driving my behaviour. Fear of missing out the 'best' deal mah and then end up averaging down, never quite getting the best deal. LOL!

    Anyway, about QAF, given times like this, people have to stay home more and hence will eat more bread right? I thought so too seeing the price being quite resilient. But I bailed in Feb making some kopi money when the situation was escalating since I reckoned that no counter will be spared.

    For Diary Farm, after I got in at $5.65 thinking the civil unrest would end soon. The counter went up to ~$6.10, irrc within a week and I was sitting on a nice profit. Then the destructive demonstration started. I bailed at $5.70 and guess what? I lost $300 due to forex losses. The 2 reasons why I'm not buying now yet because (1) the current situation would have been an opportunity for Dairy Farm if it had pursued more aggressive online sales strategy but it has been quite slow in this regard; (2) HK unrest could resume. So I wanted greater margin of safety. I checked the historical chart and decided maybe somewhere around $3.00 I'll bite. Maybe it won't go that low and maybe it will go lower. For this counter, I will just take one bite and that's it.

    None of us can predict where the bottom is, we just have to gauge what is the reasonable MOS to jump in. So long as the counter doesn't go kaput (like Alita Resources, dunno why bother to change name fr Alliance Minerals when doomsday was near *roll eyes*), our finances should emerge this stronger than before.

    Now that we are in the market, check that nagging voice in our head asking us to sell when we breakeven. That voice will grow loud when we turn in a profit, impatiently tell us not to let the profit turn into a loss! Don't let your effort go to waste selling too early. We must remember when the market has turned around, it will have some legs. :)

    Hope for the best for you!

    ReplyDelete
    Replies
    1. Hi EY,

      Let me first say a big thank you to u and Smol. I appreciate sincere qns and poking. Let me think through more Fromm another perspective. Even if I dun gain momentarily, I hope I gain in perspective.

      Regarding your comment, indeed, it was a projection of Stars when I started. Killed by summer, V shape rebound.

      But I dun think I am.the only one feeling it this way, many would have felt that way initially about the contagion contained in Asia or maybe China and the fall should be smaller because people are referencing Sars, Mers 30, Zika, H1N1 to it. Yes. I look through all these cases and realise they all burnt out in summer.

      So hence the 10 percent nibble. Granted, 10 percent could really be too small a gain and I could have waited a bit longer, but most counters that I start to nibble post Covid19 actually have fallen around 20 percent except for QAF.

      When it is clear it went to Europe and is global, i wasn't in the luck to get out so I scaled in progressively.

      Now I am referencung it to GFC but I still think it's going to be V shape recovery ... Maybe I am 2) too.

      I dun find it diff5 to explain scaling in, but the way I do it might need some more discipline.

      Thanks for the reminder of scaling out. Except for those counters perhaps more than 5 percent of portfolio, I will trim. Given the bear sale, I finally think I have enough in my radar to keep every counter below 5 percent. My ideal portfolio

      I am not dogmatic about it and it is just a guideline. But right now I have counters surpassing 10 percent and it am.not too comfortable with it

      Diary Farm, I was hoping SEA to overcome it's HK fall, indeed, given that they are still protesting even when covid 19 is going in show how bad teh situation.

      Also I was hoping that the haitus in violent protests allow cooler heads to prevail

      Delete
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