17 July 2015

In Times of Fear, How Did You React?

In recent weeks, there was much hoolaboolah with the Greek debts as they danced around the European partners, and the collapsing China share markets as the unwinding unfolded. These were accompanied by a fear of contagion of the deadly MERS virus in the region following the spread in South Korea.

The Singapore stock exchange saw some downwards movement, but never quite breached the 10% mark. At the individual stock level, most were in trend with this. Cries of a correction and bear market could be heard. At our Singapore Zoo however, our bear was flat out and enjoyed his snooze.

So what did you do during this period? Did you sell? Did you buy? Did you do nothing?

If you sold, was it because of the fear of further losses with the collapse in 2008 fresh on your mind? Did you then suffer regrets when the same stock you sold started rising again? It seems like every time you sell, it was at the lowest point?

If you bought, did you experience worries when the stock continued diving? Or did you experience glee when that happened and continued to buy more?

If you did nothing, was it because you were gripped by fear and uncertainty. You felt a sense of "I did the right thing" when you saw the stock continued to slide, and then felt a sense of "Damn, missed an opportunity" when you saw the stock climb?

The behaviour during this interesting period sheds interesting insights about the kind of investor we are. It probably helps to understand whether one is a speculator whose mood peaks and troughs with the market barometer, or is one a value investor who looks for opportunity and continues to focus on the company and its business rather than how the market is reacting.

The wider market is just a voting machine. Does it matter if the stock price goes down whereas the business continues to generate profit, experience positive cash flow, gives out dividends below its earnings, and maintains a rising trend of dividends? Or a proven management team that has proven itself over time and doesn't over reward itself, a business that can face off competition and dominates its segment, a business that provides products and services that remains relevant now and moving forward, insiders who continue to hold and buy their own stock; those are many other factors that give us greater confidence on the viability of a business.

For me, it's been a buyer's galore these past weeks. All that I need is a lot of cash. Lots.

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