Reflections and Lessons From This Bear Market

Honestly, I thought I might never write on this platform again. But well, the past month has indeed been a novel experience. Naive me thought I would never see STI test 2300 in my lifetime. So much for GFC being a once-in-a-lifetime event.

And so, new developments do call for some reflections and updates.

It’s Ok To Sell

“?@#$!, 15HWW has capitulated!!!!

Nah, I have not sold anything for the past month and unlikely to sell anything before the eventual recovery. This advice is more for general and loyal readers of this blog. And I know I am going against the general consensus in the investment community.

Why? Because I do not know your situation and the stocks you hold and I feel it’s irresponsible of me to tell you to hold on when there is a chance the market or your portfolio could go on and drop a further 20%, 30% or even 50%.

I am not trying to spook you but half of SG-listed Reits dropping 50% within 2 weeks was also unthinkable a month ago.

If your situation has evolved and you simply cannot hold your stocks for long, it really might be better to cut.

Realities Matter; Not Theories

When stocks go down, bonds and gold will hold up. Don’t worry. 

It’s been happening for a few trading days in a row. Except for cash, the bonds and gold that I held have dropped more than 5% in total. The reality is they are less volatile. But go in opposite directions? I am really unsure. That’s what the recent data says.

There’s still a big difference between cash vs other traditional safe assets like bonds and gold. There’s even a big difference between holding USD and SGD.

Investing Is Not A Team Sport

You can consult, you can ask. Heck, that’s what yours truly has done for the past two weeks, messaging some friends in the investing community.

Seeking confirmation bias is natural and a default mode, especially when one is undergoing  some form of stress. And yes, investing in a bear market can be quite stressful.

But ultimately, you are the one calling the shot to either sit still, invest or sell. Even when you are investing your money using a manager, you have to take personal responsibility for your decision.

Give Credit Where It’s Due

Subconsciously, I always thought older investment folks that went through the GFC had it easy. I was still a tertiary student back then and always assumed that if I were a decade older, I would have went all-in and reaped the benefits of the recovery.

In my brain, I thought it was as simple as 1-2-3.

Fast forward to today, my entries are gradually becoming more hesitant and also smaller in size. It’s not because there’s too many things to buy. I am just worried about finishing my precious cash fast and sinking deeper into the red with each coming day.

The reality is not as simple as the theory so kudos to those that made their pots of gold then.

This is like watching a football match and cursing the player when he makes a poor decision. It’s not easy performing good decisions live, in the thick of the action. We are mere mortals.

Beware Of Gurus

First, I want to give credit where it’s due, especially to those bloggers who came out publicly with a stand. It doesn’t matter if you are in the all-in camp or the stay-out camp. At least, your skin is in the game and you will get called out if the market turns against your call.

What I find distasteful are vague stands. So if the market turns further south, you announce that you have saved most of your cash for lower valuations. And if the market rebounds up quickly, you announce that you have made many profitable entries during the low. Either way, you turn out to be an invincible guru.

Urgh.

Concept Of Emergency Funds Become Less Fuzzy

On hindsight, I realised that I had been careless with the ringfencing of my emergency funds. No damage done though. The saving grace was that I have been rather conservative and held quite a bit of my portfolio in cash, bonds and gold.

And in such a crisis where I do have some fear over my income (since I am a self-employed and require face to face interaction), it became clear to me that I had to set aside $120k as emergency funds (to last 2-3 years) in a low probability but prolonged recession.

This also made me realise I did not have that much left to pour into the market. Instead of $200k, it’s just $150k.

Know Your Mistakes

I analysed my losses and it follows the Pareto law. 80% losses from 20% of those trades.

It’s really the small and mid caps responsible for the deepest losses. Stuff like Boustead, CSE Global, Design Studio, Kingsmen, MTQ, Super Grp and QAF.

Thankfully, I have cut most of them. But sadly, occasionally, I go back to them, most notably, early this week. A cheap and relatively weaker REIT when I got greedy for the wrong reasons. This is a firm reminder to myself that I don’t have an edge in these kind of counters. I am the sucker in this game.

I have a weak thesis to explain this phenomenon though. The fascination with small and mid caps come from traditional theory that small and mid caps are high risk, high returns. They tend to outperform large caps in the long run since they have more room to grow.

But in this modern era, the big firms no longer have so many employees and they enjoy many benefits of scale without the diseconomies of scale. Tech companies come to mind. Of course, creative destruction dictates that some small companies will eventually rise and replace but they are becoming increasingly narrower and harder than ever to pick.

Take Perspective

If you are a person that wants to hold, instead of looking at just your stock portfolio, lump it together with your cash. Or better still, lump it together with all your other assets. 

For eg, my stocks have likely taken a 60-70k hit for the past month. If I use the base as $250k (size of my stock portfolio), it does seem quite painful (25-30% drop). However, if I add my cash (include emergency funds), bonds and gold, the total approaches $500k and it’s just a 10-15% drop. Much more bearable. If I include my net property value plus CPF, the base exceeds $1m and the fall is just 6-7%, just a scratch.

I know the above is irrational. But somehow, it helps.

I was also quite lucky with a bit of market timing. Last year, I bought a new car (enjoying it thus far). I decided to pare down my stocks to fund the purchase (sold $80-100k) and form a bigger cash buffer. It turned out I sold a few stuff at the peak.

I Want To Retire In Singapore

I had made some very sketchy and rough plans to retire in lower cost countries a few years ago. That was naive.

This is a country that I served two years in army in an elite unit. A place where I am lucky to be the racial majority and would almost never be discriminated against. A place that is the most organised and efficient in the world but ungrateful me occasionally still finds it to be insufficient.

A country where I belong and am prepared to take up arms to defend.

It’s when draconian events like this happen when you realise the true value of what you have.

Our red passport is the most powerful passport in the world not because it can go to the most countries without a visa. It’s because we can always come back to this sunny island we call home. 

FIRE seems such a small issue in comparison. I am now happy and mentally prepared to work till my old age in Singapore if I get to live here my whole life. I know I will be taken care of if I put in some modicum of effort.

Give And Not Just Leech

Some transparency here. Out of the $150k I have to deploy, around $50k has been deployed and I have a strong feeling I would at most deploy another $50k to ride the market down. Basically, half of it to ride it down and half to ride it up. If income and savings remain consistent, of course the investable funds will be replenished. But there has not been time to catch a breather these days. Where’s the dead cat bounce? Just theory again?

All in all, at this point in time when I already start to feel some fear, I really hope not to use it all.

Anyway, a short story to round this post up.

On Sunday, I consulted a friend who also happens to be one of the most prominent investment bloggers (I personally think he is the best) with regards to a holding he had. It was a REIT. I was ok with the macro thesis, with it being a US REIT but had almost no idea of the quality of its holdings.

With a short primer, I went in on Monday and unfortunately, the stock tanked 30% over the past 4 trading days. I was surprised when he apologised to me this morning because there was simply no basis for it. Firstly, he had way more holdings than me and suffered much bigger losses. I was just riding on his thesis for free, or basically, just based on our friendship. I was in fact behaving like a parasite. I would have been a moron to blame him.

So this post is also a tribute to his kindness and willingness to help me and of course, others who have helped me along the way.

Friends and fellow bloggers in the community who provide me with critical social support;

Parents and students who continue to have faith in my work and teaching;

Family who have not chided me for either losing their money or giving loss-making advice during this period. Of course, also bearing with my general grouchiness since sleep quality and duration has been poorer.

Thank you.