With what’s happening with the markets currently, it’ll be good for everyone to revise their strategy which had been formulated in preparation for the upcoming bear market. By writing out my thoughts, it’ll help in clearing my head and reaffirm my own strategy.
Bear market or just a major correction, this is the first time I’ve been in one with ongoing trades. Having most of my trades going into the red and my major positions’ unrealized profits gradually diminishing day by day isn’t the most pleasant experience, but then again, I myself was looking forward to a bear market. I made some trades earlier this week, hedging against a simple correction and hoping to snag some quick profits but thankfully, I limited my exposure and am only 30% vested, some of the trades though – might have to stay with me for a few years. The upcoming market will be unforgiving, and if you lose your nerve, the losses are permanent.
Before I discuss my plans ahead, I first have to start with my investing style. I believe in high-yield dividend stocks and value investing. I would think myself as 80% dividend and 20% growth.When it comes to selecting a stock, I choose a sound investment with:
Acceptable valuation levels (P/E <~ 12)
Robust track records
Low debt levels
A company with the five points above is more or less the ideal company for dividend investing. It ensures the dividend to be consistent in distribution amount and frequency over a long time frame. Getting the stock at lower prices is just an added bonus.
For the growth aspect, it’s mostly speculation in what the next big thing is. As for now, I believe it would be autonomous driving systems – but the only concern is whether the prices have already factored that in. I wouldn’t buy crazily overvalued stocks like Mobileye at 250x P/E even with their potential. Meanwhile, Google and Tesla seem so daunting with their technical price charts, it just doesn’t seem like a good entry point. I am however, eyeing some Google if the upcoming bear brings it down further, so I’m going to be window shopping till that happens.
Imagine an already high-yielding stock at 8% at $1, with some luck, you get 400 lots at $0.5 in a bear market. When the conditions improves and the stock recovers to $1, you have a 16% yielder right there, capital gains aside, you get $3200 on your $20000 annually! That’s a month’s bonus worth for doing absolutely close to nothing. Of course, that is assuming the dividend payout is sustainable. Scale that up 10 times and you are drawing an entry level pay monthly – some people might even consider themselves financially free!
The above is the dream scenario for all investors, and it’s not all too impossible! Just as many had lost money during the 2008 GFC, a great deal of people managed to capitalize on the poor sentiments and made a fortune the following years.
It sounds easy, people look at charts at that point and curse why didn’t they buy then. This phenomenon of people buying stocks when they are overvalued and selling when they are undervalued seems queer coming from a broader perspective – but then again, hindsight is always 20/20. To put it simply, let’s say you are at a grocery store buying some eggs and the price for a dozen is usually around $2.50. You see one brand selling a dozen eggs at $1.00, would you buy it? I would presume most of the time not.
During the GFC, the lowest P/E DBS was trading at was 4.6x. Now, think and wonder why wouldn’t you buy one of the safest investments in Singapore at such a discount? The day DBS goes bust is the day where Singapore ceases to exist – at that point, your money wouldn’t even matter anymore.
Always keep these very basic points in mind, assume the worst case scenario and assess the risks from there. More importantly, a clear mind is required to see that a sound investment will always recover from a down-point, no matter how low it goes.
|2600 – 2800||30%|
|2400 – 2600||15%|
|2200 – 2400||30%|
|2000 – 2200||25%|
Given that I am new to the market and have few significant positions in the market, this allocation applies to my entire investable cashflow, instead of just the warchest. With the STI already breaching 2750, we all are simply waiting for the next phase of the bear.
2600 – 2800 – Currently “ahead” of plans and 30% vested at 2750 (regrets)
2400 – 2600 – Underweight at this point as market recovery before falling further seems improbable
2200 – 2400 – Deploy most of my funds, stocks prices are already at a steal
2000 – 2200 – Raking in the gold, licking off my plates, whatever you call it
<2000 – Checking every single pants in the house for spare coins to throw at the market