We are officially in a correction which can go up to 19% drop in terms of share prices. If the market price drops >20%, then we are into a bear market. What should value investors do at this moment?
Let me share some of the thought processes:
1) The Sale that you have been waiting for is here, it does not mean that you need to enter the market but with cash seating on the sideline means you can deploy them when the stock price comes to your ideal price range. This means that you have done your homework, created your watch list of stocks and understand what are the intrinsic values. I am going to deploy the last 100k into different tranches to absorb China A50 ETF and Tracker Fund to focus mainly on China and Hong Kong market. The dividend will allow my wife to settle some expenses such as charity and bills. I will not deploy margin money for correction. I will only deploy it when there is a bear market and there is a strategy to peg to margin to make it work.
2) Investor Mindset – Investing is all about managing your emotions. That is the reason why the gurus always say a good temperament is essential for investment. Everyone likes to think they can be a contrarian but when the fire is here, everyone shit in their pants. Especially with the past 1 week, there is so much volatility in the market, the market can drop 1000 points on alternative days, you will not know how to react. I will like to take this as a form of training. You need to be calm and see this as an opportunity to re-enter the market. We need to control our natural human instinct to flee when there is danger and avoid the herd mentality to follow everyone to sell when the market prices hit low.
3) Be like an ostrich – I recalled just 2 years ago when I thought with the rising interest rates environment, OCBC should benefit from it and I took a huge stake in OCBC (about 30% of my portfolio back then). Then OCBC started to drop till $8+ as Singapore STI took a correction. It was very painful to keep looking at your price and your total portfolio value. The pain of losing money is much more severe than the feeling of winning money. Prices will not miraculously increase in a downturn just because you keep pressing the refresh button. The only thing that holds is Value which is not based on market pricing. For example, Apple has its ecosystem of products and services in tact and a share price of USD 100 or USD 200 does not affect the business. In a market downturn, people are still buying iPhone X (maybe lesser). Focusing on value instead of just price itself, you can sniff out undervalue stocks and rebalance your portfolio. Mr Market is offering you a good price for these coming few weeks as a form of Ang Bao for Chinese New Year. For example, if you are yield player, Singtel is offering a pretty awesome 5% yield. Unfortunately, I have already deployed my cash into the market but the bulk of SGD 200k is been bet on a specific counter. I was lucky to consolidate the money before the correction into this defensive counter. So far it has corrected 7%. I will switch out to AAPL or a few other stocks depending whether there is sufficient margin of safety. I have learnt in times of downturn, I will be like an ostrich, I will not check the prices and unrealised profit/losses. I continue to build my stocks watch list.
4) Find a Hobby or Things to do other than spend time looking at the screen – Do something that keeps your mind away from the market. It can be in the form of exercise such as cycling, running, swimming, etc. It can also be working hard at work. It can be spending more quality time with the family.
There are companies which counter the down trend and there are bargains out there. Hope you can find value stocks and enjoy life! Stay healthy, stay wealthy. Health comes first. Do not let the market affect your health. Close the screen and go exercise now!