Half Will Be Wrong, The Other Half Lucky
I started working from home this week, after my government finally issued the circuit breaker and stopped all non-essential business. For someone like me who is in the construction industry, working from home is near impossible. I mean, no work on site equals no progress and therefore no revenue. Furthermore, there is only so much paperwork you can do.
Enough about my work, let’s talk about the markets.
Fortune tellers are out in full force! I have seen a high number of posts and articles claiming to know the direction of the market and the shape of the recovery (V, L, W, bla bla bla). You have the “worst is yet to come” group and another one calling for bottoms every green day. In the forums, it’s interesting to note that whenever people call for tops, they get bashed but you can have lots of people calling for bottom and nobody cares. Then we have this irritating group of people debating on whether the “boats” have left or not.
It’s crazy really and I find it so annoying that I decided to have a go at it here.
Don’t Believe Everything You Read
I don’t think that I have to remind about this. You should not believe the news too much when they try to explain what is going on in the market. Most news agencies and newspapers are treating the markets as sports and they are trying to put everything into one headline. It can also be a little more confusing than helpful from time to time. Take everything with a pinch of salt.
You seek what you want to see. For example, I am now long uranium and my Twitter feed is filled with other people bullish on uranium. However, I am aware that this is how Twitter works and it is important to find the bearish case against uranium. Point is, if you are looking for a recovery or a new low, you will probably find lots of articles written about what you are interested in and it sort of reinforces and narrows your view. DON’T fall into this trap. Always make an effort in looking for information or opinions that will challenge your thesis and review it.
What is Your Action Plan?
So what if share prices fall again? So what if the “boat” is back at port? What is your own action plan? Are banks the best investment idea right now given that we have entered recession? Should you short Singapore Airlines (SGX:C6L) when the gov is backing it? What’s the rationale for buying Dairy Farm Holdings (SGX:D01) only when it hits $3?
Don’t rely on others to do the homework. It is better to do your own research have your own high conviction ideas, that way you are less likely to freak out when prices go either up or down.
If you are a long term investor, you should be slowly adding to your favourite stocks. You could also do a little rebalancing, like selling those stocks that you feel are permanently damaged by recent events.
If you are a trader, then you should be sticking to your plan, do a little technical analysis to guide you with your positioning and risk management.
For me, I always have a watchlist of stocks that I want to own and I wait patiently for my target entry price. If it doesn’t happen, I just do nothing. I also have 3 rules for buying stocks
1) Only buy when market is going down and sell when it is going up. This is to control the inner FOMO and to lower the risk of me making stupid mistakes.
2) Always ask yourself whether you will continue to add if prices go 10–20% lower. If not, it means that you still consider it expensive and you should lower your entry price.
3) I usually set aside a budget for 3 tranches (or bullets) when I decided to own a stock. This way you are less likely to panic sell when things do not go your way after you bought the stock.
What To Do Now?
The fact is nobody has any idea what is to come. And they have no idea what the market thinks. They do not know what is priced in and what isn’t.
For example, Genting SG (SGX:G13) is up almost 50% after soft lockdown and circuit breaker is announced? (Honestly I thought it will tank)
In this type market you have to pick an entry point you are comfortable with after weighing the pros and cons. The market is either going to spike back in the next couple of weeks or it could potentially retest recent lows. Nobody knows.
Conclusion, don’t look to predictions for investment ideas. Half the time they are wrong and the other half is lucky. So stop reading this and other macro articles and lame “boat” posts and stick to your plan.
Cheers
Originally published at http://themosspiglets.com on April 9, 2020.
