25 August 2015

Playing with the Bears of 2015 - should I be excited or miserable?

Over the weekend, the headlines were screaming death and destruction. When the headlines of two national papers start carrying headlines like this, it's time to pay serious attention!

What's with the sudden excitement? It's not as if it suddenly happened. The STI has already been declining for months from the last high of 3500 earlier this year. So 3,000 is perhaps just a psychological number, which was otherwise of no significance?

At 3,200, we were already effectively experiencing a correction (-10%) and we had already gone past that. By 2,800, we would officially be in a bear market (-20%). In fact, some of the emerging markets had already reached bear territory in recent weeks.

On, 24 Aug 2015, the local market seems to have collapsed. The board was a sea of red. Mumbles of "Black Monday" was heard. The VIX was rapidly reaching the 30s while the STI had reached 2,843.

Was it a capitulation? Judging from the many posts that it was an opportunity to buy, I guess not yet. From this point, there can only be two possible trajectories: (a) the market continues further downhill and sparks a complete capitulation before making its recovery, or (b) we are already at the bottom and the market recovers from here.

With Scenario A, there will be more regrets of "Shit, I bought too early!" or worse, "I better sell before it's too late!"  With Scenario B, there will be regrets of "I missed the bottom!" Either way, it will be a wailing wall of regrets.

Undeniably, this will be a baptism of fire for new investors who have not experienced the events of 1997, 2000, 2002/3, 2008/9 and 2011. They will look back in time and wondered what the fuss was. History tends to look a lot less terrible than today's reality.

Watching a profit of $50,000 sink into the negatives within a matter of weeks or even days can be highly demoralising for somebody with a portfolio of $250,000.

For an impending retiree, watching a retirement fund of $1,000,000 sink into $800,000 is like experiencing a firestorm that had just burned down a sizable part of the farm you're living on. It could well mean reducing a lifestyle of $3,333 a month to just $2,667 a month for the next few months or years, even as inflation creeps upwards!

What's been its effect on me? I've been dumping all my cash drawers and depositing them into my investment account. Buying and buying, day after day, as the market trended downwards. My only worry is running out of cash before it has reached the bottom of this pit. I should probably pace myself.

But two things I shouldn't touch: (a) the education funds for my kids, and (b) at least 6 months worth of expenses in cash as an emergency fund.

So what have you been doing?


Sweet Retirement said...

Same as you. Buy buy buy!

Sillyinvestor said...

Hi Lizardo,

I am buy, buy, queue, queue, queue....Zzzzzz

Also good la, if i buy buy buy buy then I run out of ammo liao

Lizardo said...

Sweet Retirement and Sillyinvestor,

High five!