Friday, July 6, 2018

This Is The Reason Why People Fear The Stock Market

The stock market is not a place where everyone gathers and make money.

The market is brutal and can hurt those who does not take it seriously.

Today's brutal session in the market shows why people generally fear and avoid the stock market.

The STI index drops about 2.1% today on session close and it is one of the larger drop I have seen in this year.

One of the main cause of drop is due to the announcement made last night by MAS in a bid to tighten the mass retail market demand by raising the ABSD and tightening the TDSR.

Everyone processes the same common information and outcome and you can see how folks went to rush into buying a unit before the official tightening kicks in.

No, it's not a bak choy sale at NTUC for $1.10, it's a freaking condo worth $1m and above!
Demand from last night units sold alone was this for the 3 main condo launched:

Park Colonial Total = 310 units sold
Riverfront Total = 511 units sold
Stirling Total = 187 units sold

When the market opens this morning, investors were treated to a rude shock when large strong cap companies dropped as much as 16% easily.

We are not talking about some crappy companies but a conglomerate with multiple geographical assets and division.

Even companies like Bukit Sembawang which has a strong balance sheet were not spared, dropping a massive 9% in a day.

This is not just about competency we are talking about here.

Property valuations were cheap and they continue to become even cheaper from now here.

I have a couple of friends who were caught by this news and their portfolio suddenly look heavily in red. 

Some of these people are value investors who are depending on Fundamental Analysis to come up with their decision.

I call this day a black swan for property investors, a definition used by Nassim Taleb to determine an unknown-unknown factor that investors cannot avoid from apart from being sufficiently diversified from the sector.

As an investor myself, I can feel such pain when you have to wait a long 5 years of 3% dividend from these developer, only to have it get wiped out in a single day.

This is also the reason why I tend to prefer going the dividend strategy method. Money in the pocket is worth the sum of parts more than paper profits.

This is why folks generally tend to avoid the stock market.

Think of folks that are new to the market and they are exposed to such brutal market in a day.

This is the reason why people fear and avoid the market.

It'll attack the clueless but also the knowledgable folks.

It'll attack the poor as well as the rich.

It'll left scars throughout our body.

Thanks for reading.

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  1. Man this is nothing in the bigger scheme of things. We've dropped >5% in a day before ..... and I've no doubt we will see those days in the future.

    This speaks to 2 things:
    1. Having a warchest; not being fully invested especially after markets have run up strongly after 2 years.

    2. Being diversified in terms of geography, sectors, assets (cash can be seen as a type of asset).

    Just take your stocks/property/commodity portion & divide by 2. This will be the result in the midst of severe recession. If you're comfortable with your portfolio value, that means that you're adequately diversified or you have sufficient warchest/cash buffer.

    Keep calm & stay broadly invested. The worse is to sell in the midst of panic.

    1. Hi Anonymous

      Thanks for your thoughts and comments.

      To me this is still something in the bigger scheme of things. To have a property stock drop more than 15% in a single day is still something. I think your heart must be stronger enough than mine :)

      But yes I agree with you that psychologically we have to be ready, it's always hard still knowing that you have prepared all your life for this.

  2. 3Fs, thanks for your candid comments. As an investor yourself, do you have any advice whether to sell property counters soon or hold or average down since this is a systemic hit?

    1. Hi Anonymous

      Some of the property counters like UOL, Guocoland, Capitaland, FPL, Ho bee, I would still keep as obviously the market has discounted them too much of a jerk reaction though their portfolio will not be impacted as much as others like Oxley, CDL, Bukit Sembawang etc.

      If you are holding the latter, I think it'll take a longer time for it to bounce back so I would sell first in that case. I think residential property play fundamentals have changed, so the fact they remain cheap today will remain so as there are no catalysts to come.

  3. Stock markets in 2018 are too volatile. Instead of trying to make money, people should invest into learning and wait for market fall

    1. Hi Mpandya

      Learning always take place but I agree it's important to invest in the learning phase.

  4. Hi B,

    Ironically, Singtel did not slide into the red on friday.

    1. Hi MIM

      Singtel probably already beaten up hhaa

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