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Wednesday, July 8, 2015

Are You Panicking In The Market Correction Today?

I could sense some form of excitement amongst my fellow financial bloggers and facebook group of friends. Today, the Shanghai and HSI market plunged rather badly, providing contagion to its nearby market Nikkei as well as STI and the rest of the Asian market. The feeling of "correction is finally here" has risen amongst the more seasoned investors, but there are some who feel trapped and scared, perhaps given their lack of experience investing in the market, either through herd investing or investing at the peak of the share price.





I think it's probably a good time to look back at some of the recent posts I made in relation to what investors should be doing during a market downturn. This doesn't take away the emotional fear which investors would naturally possess, but rather a clarity on what investors should expect during a market correction.

The Firefighter Gene Way Of Investing

What Should You Be Doing In Current Market Conditions?

What Is Your Goal In Investing?

Psychology In Crisis And Herd Investing

Pacing Your Buying Activities


My Feeling Today


I'm experimenting my emotional feeling in the market correction today, not just because share price has fallen which makes it a cheaper buy, but also the psychological factor in trying to understand how investors would react given first a small market correction, buying activities, catching a falling knife, holding on for further drops and bigger market corrections.

I've experienced a correction with a magnitude larger than this, but I was much more inexperience back then.

Today, my focus was directed right at the target of the shares I've been researching for a long time but has not had the chance to add on. This includes potential new additions as well as the current holdings in my portfolio. There were some other emerging value play that came out of random, some companies which has not been in my watchlist but has caught my attention. 

I believe this is what most investors would experience during a bear market. You have limited cash yet you have many more value emerging out of the correction. This is now no longer about a game where you had to pick winners. You are convinced that a lot of these companies are winners in the long run, but because you have only such limited amount of cash, you need to pick the best of the best such that you don't lose out on the opportunity funds.

I'm still not convinced I am seeing any panicking yet so the same would probably go to most investors out there. There are some who would hold on to their bullets while there are some who are nibbling a little out there already. Regardless, I hope everyone has a plan of their own so that they won't be caught naked or with too much clothes on when the tide turns around.

It's just the first day since a long time that we see such brutality in the market. 

I'm sure more feelings will emerge in the days ahead should market plunge further.


What about you? How do you feel during a small market correction today?


21 comments:

  1. Haha not much of a correction as yet. Singapore isn't even down 10% from the year's high yet.

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    1. Hi MW

      A couple more repeatance of such occurence and we will see some panicking soon.

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    1. Hi Daryl

      The world will always be a messy place to begin with. There's no such a time when CNN or CNBC does not report anything that doesn't make investors wary of something, or anything. Don't fear the "fear", as that is part and parcel of investing if you decide to set a foot into it.

      You mention about revisiting the portfolio only when the world is "less crazy". That occurence will not happen often and over the years, you'll be left disappointed for the most part of investing. There's a very good article written by a fellow friend of mine which you could perhaps take a look and give you better insights to it. Hope it helps.

      http://www.fool.sg/2015/07/09/the-worlds-a-big-mess-now-but-heres-why-you-should-still-invest/

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  3. If I'm in China, I'd sell like everybody else (The stock increase 160% in less than a year, there was no way I'd lose money, right? :)) I'd also borrowed from margin and with margin calls (leverage is the key, right?!" haha)

    Back in the 2008, everybody was saying that they didn't sell it fast enough. "Sell first, ask question later" was the moto.

    Then came 2009, stock was down more than 40%, but nobody knows it was the bottom. Only very few was able to overcome the fear and buy into the market.

    Anyhow, the Chinese government has notoriously been controlling the economy. But they couldn't stop the boom. Every week, there is a new billionaire in China. Anyhow, I thought it would hit 5000 point before it crashes, but the Chinese government put a stop on it by making borrowing money to invest harder ... then it created this ripple effect as we seen today - freezing trading, panicking selling of blue chips, etc.

    Seriously, if I'm in China right now and have extra money laying around, I'd buy blue chips. Just like back in 2009 - buying JNJ or something like that would have been nice. Correction: I'd buy a basket of blue chips, because I wouldn't know which one couldn't survive the storm.

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    1. Hi Vivianne

      Thanks for sharing on your thoughts.

      The Chinese market is heavily enclosed and controlled. As such, fundamentals don't usually work too much into it. Investors would rather fried the price and it's a competition between who can reach for the faster exit.

      It's a trader's heaven but I'd rather not invest in those sort of markets, unless I am going for the quick and big bucks. Definitely not a place for buy and hold.

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  4. Hi B,

    I still think there is more greed than fear now.

    Look how fast markets rebound each time. If today the market continue its fall of more than 1%, it will be a very long time since 2 consecutive significant falls.

    I have start to queue for today for some nimbles at CM pacific and Sembcorp. But still getting ammo for other uses.

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  5. Hi SI

    You're right. Volatility is at its good time now.

    What comes down comes back up as quickly, so we don't really know where's the direction going.

    Reporting season is coming up shortly though, beware of companies which are reporting poorly, in addition to the rocky market. But I'll not be so worried about you, you know what to do :)

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  6. Hi B,

    I'm fully vested right now. But I'm palnning to cash out 25-50% to have some bullets when the inevitable happens. I hope to get a pie of RMG or Vicom one day.

    Regards,
    CM

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    1. Btw, is this the reason you have around 30% warchest?

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    2. Hi CM

      I used to be like you having almost fully vested in the market at any given point in time, but after I give some serious consideration for myself, I found that perhaps I just need some warchest either mentally to break myself from any severe downturn happening and second if there are good opportunities to deploy.

      You may want to read my latest post on the stress test to familiarize yourself with the magnitude of the downturn of 2008 and 2011 and what it can impact you.

      Take care.

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  7. I actually panicked because no one is panicking in Singapore. Haha

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    1. Hi Frugal Daddy

      That's a good panic :)

      Indeed, everyone's getting too complacent with all the easy money and returns being made these past few years.

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  8. The end of World War 1 brought a new era into the United States; an era of enthusiasm, optimism, and confidence. This was a time when the industrial revolution was in full swing and new inventions, such as radio and airplanes, made anything seem possible. Capitalism was the economic model and nothing but good times seemed to appear on the horizon. It was this new era of optimism that enticed so many to take their savings and invest in various businesses and stock offering. And in the 1920s, the stock market was a promising favorite.

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  9. Hi B,

    I think there's nothing to panic. Most Singaporeans still have jobs.

    Stock market for non-full-timers is still just a secondary part of their life.

    Makes more sense to panic when u start losing ur job!

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  10. Hi Rolf

    I'm going to disagree with you a little on this.

    With all due respect, I think both you (and I) are not so heavily invested in the magnitude of the worst event and our family obligation are not as much back then as it was now, so I think it's too easy to dismiss the panic when disaster has not struck yet.

    I've written my latest article on the stress test of small cap, you may want to take a look that. I think it's always better to be safe than sorry.

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  11. Hi B,

    :-)

    I thought u r asking me (only) how I feel from the last paragraph of ur blog. So I answer from what I feel.

    So I answered base on "my opinion" which I think that at this moment for me, there is nothing to panic bcos most Singaporeans still have jobs. Of course, it is not possible to zoom into granular details of the few % that is heavily invested and may suffered greatly.

    I am generalize on majority "impact" since it's and more focus on all Singaporeans since this is my home and I love my country.

    I think it's good that u disagree bcos opinions are unique/individual. That is y we have a discussion! :-)

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    1. Hi Rolf

      Sorry for misunderstanding you. I apologize for it :)

      I see your point now. I guess you were trying to say that job plays a more important role right now in providing active income, and as such should anything bad happens towards an investment, there are at least still back up for the main income generation.

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    2. Hi B,

      Nothing to apologise lar! You got ur point too! Discussion has no right no right. I do not care I am right frankly, I always care more about the country still have jobs for its people's livelihood.

      Look at Greece, it's disastrous for its people.

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