I sent the following newsletter to our Value Investors Club members two weeks ago.
I wanted to share my experience and my actions in the current market condition.
The BigFatPurse team thought that this newsletter could be extended to our readers too.
We hope that you could glean some insights from it.
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Below is an excerpt, and not the full newsletter.
My Expectations Were Miscalibrated
When I first invested in stocks, I was anxious to see my investment grow.
But the stock market does not reward according to one’s desires. It was slow when it comes to investing. I lost some patience and my interest waned.
When the market corrected, I ended up even more disappointed.
I was expecting to make money and not lose any.
Disheartened, I hopped to another strategy. In fact, I hopped from one to another as soon as I tried it and it ‘didn’t work’.
The reality was that I did not stick long enough to a strategy to review if it really worked.
I know you would not have the same conviction in the CNAV strategy as much as I do because I was the one who developed it.
It is easier hop onto another strategy after you have met some set back with CNAV stocks, especially in market conditions like these.
It is ok. It is part of the learning journey. A self discovery process.
Avoiding Market Crashes
Market crashes are scary because I hear a lot of stories about how people lost their fortunes.
I have heard stories from my mum about who and who had lost money.
TV shows also depicted characters committing suicides due to massive losses from the stock market.
Naturally I am programmed to avoid stock market crashes since young.
I remembered asking Eric, fund manager of Aggregate Asset Management, “Do you sell and avoid stock market crashes?”
He said he does not sell because he does not know whether a stock market would crash or not.
Just like now, can you say with certainty that the stock market would crash? Or would it rebound?
Stock market crashes are only obvious after it has happened, not before.
My subconscious response was always to avoid stock market crashes. If I can sell first and buy lower, isn’t it common sense to do so?
But over the years I realised that most people cannot do it. Most people failed at timing the market properly. In fact, they do worse. When prices go lower, they did not dare to invest. So much for buying ‘lower’ later.
It was over many years before I could accept holding through a stock market crash.
How did I do it?
First, I do not see renowned value investors like Warren Buffett selling before a crash. He lost more money than anybody else when the stock market dropped but he did not sell.
Second, I have seen many value strategies achieve more than 10% per annum, without the need for timing the market.
These challenged my belief of selling before a crash.
How Far Down Will It Go
I am quite confident the drop will not go below the 2008 low because I believe in the Dow Theory for this aspect. Each stock market low should not be lower than the previous one, provided the economy of that country has grown over the years.
I think the worst STI would go to would be around 1,900, based on just simple trendlines.
That said, the market could still potentially rebound without getting to that point.
What will I do?