Should I be worried about the impending Bear Market
Updated: Jul 3, 2020
The last 5 days have been consecutive “Red” days with the S&P500 Index and the Dow Jones Index falling by approximately 8%. Since I started investing last year, I have not seen this many back to back negative days. While it is obvious that the drop has been triggered by the further escalation of the C-19 situation as it finally made its way to Europe, what is not obvious is whether this is a temporary blip or just the beginning of a longer sustained period of contraction of the market. While investors hope the market bounces back, I am more inclined to believe that the supply chains of most companies have been hit, leading to some such as Microsoft, HP and Apple adjusting their guidance for the subsequent quarters.
As such, because no one truly knows whether this market behaviour is temporary, I have decided to go through all my holdings and categorise them into the various strategies I want to follow while trying to navigate this period. In the last few days, as I see half the profits from my portfolio vanish, I realised that a key aspect of investing is managing your emotions. And once you have mastered that, you will be able to think more rationally when the marketing is performing extremely badly or in some cases performing extremely well.
So, before I go into my strategy, here are some rules that I want to keep in mind while developing the strategy.
1) Buy Low Sell High
A very simple rule but what does it mean in this context? Obviously, there are going to be many opportunities to “Buy Low” now that the market is falling. But what I want to assess is how long before the stock goes back to “High”. Also, the reverse works for the stocks that I am holding. Do I want to sell some while they are at their temporary high now? Do I want to buy more of my current positions because the prices are lower
2) Given a long enough time frame, all stocks will make money
The caveat to this rule is obviously assuming that the company that you are holding does not go bankrupt. This rule will be important for my dividend stocks, I will need to relook at these companies and ensure I am comfortable holding them for a long long time.
3) There is always another opportunity to make money
This rule is the one I always find myself forgetting. In the last few days, I have found myself wildly doing short term trading on pharmaceutical stocks and they are very sensitive to news about the C-19. While I have been successful over the last few days, I found that when the market is moving wildly, I am in a rush to get in and exploit it. I believe more of these opportunities will present themselves over the coming months, and I want to keep reminding myself not to jump in too soon.
For my strategy, I have divided my holdings into different groups and will manage them according to the strategy for the groups.
This first group are the holdings that will sit on my portfolio like a “rock” and keep the dividends “rolling” in. I am very sure that these companies will do okay during any market downturn and hope to keep them for a long time. As such, their price going down will not and should not bother me. In fact, any drops in price will be seen as an opportunity to buy more.
The investments that fall in this category are: Stashaway ETFs, Abbvie, Bank Of America, AT&T, Verizon, OCBC, Ascendas REIT, Singtel, Keppel DC REIT, Parkway REIT, ST Engineering, Mapletree North Asia REIT
In this group, I want to increase my position in these companies and will buy as much as I can if the price drops. I will be looking particularly at companies that I expect to come back up faster so that when the market recovers, I will be able to cash out. While in theory this strategy is logical, it is also a dangerous one. If I do not buy at the right time, I could be locking up my money for quite some time. I will probably wait and see how the market behaves before going all in on this strategy. Since it is not advisable to time the market, one way to mitigate that risk is to buy smaller lots at different times which I will try to do.
Investments that fall in this category are: Microsoft, Tesla, Canopy Growth
There are 2 holdings here which I am frankly quite confused about and will probably be looking to unload them at the right time.
The first is the Franklin Templeton Technology Index Fund. While this has performed quite well for me, I have not been adding to this position. This is largely because I think the cost of this fund is really high. And if the market is falling, I want to get out of this before I am in the green. The question is, do I sell now, or do I believe the market will recover temporarily in the coming weeks? I am going to take a gamble and wait till next week before I sell this off.
The second investment here is Exact Sciences Corporation (EXAS). Yes, I just bought it last week and even wrote a blog post on it. And since I bought it, it had been going according to my prediction and heading towards my $120 target. However, the recent market and C-19 fears have actually stopped the advancement of this stock and it has moved in reverse, currently I am at -$200 for EXAS. I doubt it will go up to my target $120 price anytime soon. So, I will also be looking for the right opportunity to sell EXAS off in the coming days.
Disclaimer: This post should not be interpreted as investment advice as I am not a professional financial consultant. The objective of this blog is to share my experiences with others and receive feedback. I will provide links to my information sources to the best of my abilities, but the reader is responsible for their own due diligence