Monday, June 25, 2018

Running Faster Than The Bear In The Stock Market

It hasn't been exactly that time of the year when we are faced with grumbling bears and depressing news all over the channel but investing in this year market hasn't been that easy.

The past couple of years have seen the market rise up to double digit gains that investors sort of get used to that and forget that investing in a higher bull market can result in a permanent loss of capital when buying without that margin of safety.

For some reason, there's always the promising growth outlook that you hear that would justify your reasons for buying higher.

If you are a new investors who'd just entered the market in the past 1 or 2 years, you'd fall under these 2 categories.

First category, you surream an enormously high level of energy that gets you raring to go and put both your feet into the market right away. After all, the returns have been pretty good and market outlook looks promising with many countries starting to raise interest rates signaling greater time to come.

Second category, you are wary of the past bear market, in particular the great horror stories of the financial crisis in 2008 that are still very much popular among the new generation. You kept a good amount of warchest allocation and wait, but are slowly getting listless with the amount of waiting and hence dip deeper with more allocation into equities and less warchest. Your energy starts to escalate as your exposure to equities are now in significant position.

The bear will come once in a while to visit in the most unexpected and unglamorous way of entrance in the stock market.

The bear comes biting and it'll come scaring each runner because you are stepping into their territory and they don't like it. This happens when there are more and more people stepping in into their territory as the bull market comes raging on.

When the bear comes out of the wood, it'll start to run and chase and there will be a few people who'll get beaten along the way to become the prey of the wood.

But there will also be people who prosper by either hiding or running faster than the bear.

If you look at the attached above, the bear runs at a speed of 34.8 mph and the only way for you to run faster is if you transform into a lion or a cat alike type of animals (Cheetah/Jaguar).

In the stock market definition, that means either exiting the market by timing it perfectly at the top or you prepare your psychological battle with the bear by taking it directly. That means having to prepare mentally that you are going to see a drawdown of 30-50% of your portfolio at some point in time.

If you have a strong mental mind, you can remind and encourage yourself that the drawdown can be temporary if your portfolio consists of strong companies that will rebound once the bear market is over. Economic cycle always recover in time and strong companies will bounce back. It is merely a state of the mental which many people are not trained to take it.

Having a portion of your ammunition in the form of warchest also helps mentally that it doesn't suffer a drawdown as deep as your equities but do remember that having more warchest doesn't equate to having lesser risk. A warchest is only as useful if they are being put to use but the majority will be afraid of doing so when there are blood on the street.

One can only look into the recent oil bear case in 2015 and the recent telco blood in the street market which many are finding it difficult to find an entry point, despite getting very interested in the exposure of the sector.

If you happen to be a turtle, please do not try to attempt to outrun the bear as you know you'll lose in a running race. Get to somewhere safe and hide from the shelter, it'll bring you greater likelihood of surviving once the winter is over.

Thanks for reading.

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  1. Hahahha, I like the analogy!

    I think the bear is nowhere in sight, althought there is rustling of the leaves.

    For the past few years, those who claim bear behind the bushes are called paranoid.

    The last 10 years only twice did a cute little cub came out of the bushes. Some go arr.. so cute.

    Anyway, with age, I feel More and more like a turtle as compared to Rambo in the past.

    Looking at so many possible targets but never dare enter the hunting arena to fire the shot.

    I scare I the unlucky one to wake the bear

    1. Hi SI

      Yes I recall you are still very much with the warchest.

      These days, I kept close to zero warchest, when I have spare money, I just keep allocating them. I think market is decently attractive right now. For sure, bear will catch me some day, I just need to make sure he won't bite me. haha

    2. Hi B ,

      I am quite interested to know of the rationale to remain fully vested. Given that the bull markets are in their 10th year and the possibility of a yield curve flattening/inverting.

      Noted markets are decently attractive for SG , but our markets are coupled with US markets which overall have a high PE ratio as a whole.

  2. Hello B,

    Category 2 sounds like me, new investor with less than 2 years of experience. I'm still holding quite well with the recent telco bloodshed, however I'm still undecided if I should average down with my already heavy weighted on telcos :/

    1. Hi Cupcake

      I have also added more position into telco this year with the massacre, with the recent addition 2 shots for Singtel at $3.32 and $3.11 more recently.

      Still surviving so far, need round 2 battle with the bear.

  3. Hi B,

    Most retail investors are the last to know when bears strike. It is difficult to beat the big boys. The conventional wisdom is to enter during market crashes but prevalent fear will deter most people from investing. Nevertheless, nice article! Keep it up.


    1. Hi Gerald

      You are right. Retail investors cannot beat the bear which is why they have to have a plan to outlast the bear and it can come in many form. But fear is one which defeats many people.

  4. Hello B,

    I really liked the way to explained and categorized the new investors, really impressive!!


  5. Hi B

    It is very hard to identify whether the recent corrections are teddy bears or grizzly bears. There is so much noise in the market that it is hard to separate fact from fiction.

    Buying on dips (small cuddly bear) may feel good. But it will take true strength of character to buy into a giant grizzly bear and hold it out.

    Not much of a jaguar so turtling it out and staying vested until the real grizzly bear comes.

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