Friday, May 22, 2020

Stock Market Crash Is Normal But Our Mentality Is Not

Stock market crashed again on Friday.

This time round, it is not due to the Covid-19 but news that Beijing is governing stricter laws on Hongkong.

Public Holiday next Monday, and I extended another day for myself by utilizing my leave on Tuesday.

As a result of that, I received my salaries earlier than the usual.

It's been a while since the stars are aligned. I don't usually get such combination very often over the years.

I logged in to my brokerage account, took a 5 minute look at the market, put in my order and logged out of my brokerage account.

The next thing I know, I received a message notifying that my orders got filled.

Stock Market Crash vs Participant's Mentality

One minute, the market is green giving speculation on market participants about a potential V-share recovery on the economy.

The next second we know, the market crashed again, like today, after finally hitting a stumbling block over the past couple of days.

This time round, the news is that Beijing is putting stricter policy on Hongkong, which have been invaded by protesters.

This is the stock market.

We don't know how the stock market is going to react and its precise correlative nature to the economy. A lot of news are currently sentiments driven, such as the announcement regarding the phase 1 trial from Moderna or news on Hongkong protests that will send markets on the reverse run.

The stock market crash is normal, it happens all the time for the past 70 years for various reasons.

On the other hand, market participants' mentality are usually not so...normal.

They are constantly bogged down by decisions on when is the best time to enter with more time spent on predicting the correlation of the share price to the news they saw on the screen instead of using that time to research more on the fundamentals of solid companies.

Contrary to many people's beliefs, I think the next 1 to 2 years will be an extremely opportune time to accumulate more equity in the portfolio because we have such a fragile economy that is looking to falter any time that we can't help but feeling the market will also crash any time.

But that is when the best entry points are usually made.

Investors often get the best value out from their investments when there are macro uncertainties happening because this will then impact most earnings in the next two to three quarters, which we already know that it is going to get really ugly in the short term but will return to better times ahead.

There are usually a lot of people, including some which I know that are waiting on the sideline and are waiting for things to return to normalcy. I'm not exactly sure what are they waiting for but I presume some sorts of vaccine or alike before things would get better.

Many gave suggestions that we should be holding on to cash to ride through this crisis and that we should wait to dip our toes in the stock market only when things get better.

All these points to a decision of uncertainty.

It is not stock market or economic uncertainty but rather our very own mental block of not knowing what to do when shit hits the fans.

Most people are looking for some sort of guidance - from the news they read, the herds around them and the green bars in the stock market. 

For anyone who's starting young and is at the accumulation phase, the pandemic outbreak and market volatility right now gives an opportunity to accelerate our FIRE plan because we are buying into a market that is currently having some issues right now. In other words, the market is at a reasonable valuation which will average out just fine over time.

Have our emergency funds ready. Maximize our human capital.

Increase our side gigs income. Continue saving hard.

Keep pumping any excess savings into the stock market and buy the dip.

We too can become normal by accepting what is normal in the stock market.

Thanks for reading.

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  1. The thing is, the market is not crashing per se. The market is trying to stage a rally in the midst of a turmoil that has not completely unfold and when it is projected that countries around the world will go into recession. Thats the worrying part about getting into the market now. There is a disconnect between market and reality.'I guess thats why there are some people who are waiting on the sideline when others are chasing the rally. My own thoughts.

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  2. I had the same experience on Friday. Put in an order before market open. Within 5 minutes of trading, my order got filled.

    We will never know when the lowest price will occur. Neither should we attempt to time it. Rather than staying by the sidelines, it may be better to take nibbles instead.

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