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Author: RicheHo   |   Latest post: Sat, 18 Mar 2017, 09:29 PM

 

The Art Of Investing – How To Survive During Market Downturn

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There are too many knowledge in investing.  Somehow, I found it quite interesting to learn. For me, investing is considered as an art. It consists of different element and the one of the element is to pick a good counter.

Besides than choosing a good stock, the most important part is the process of handling and monitoring during the holding period. Look at the INARI chart above. If you hold Inari since 2013, you will gain more than 300% return! It is a lot. The chart above is what normally a SIFU will share with you for their successful investment.

However, how many of them will share with you how did they handle the up and down of the whole holding period. Look at the chart below. I had zoomed into the blue circle part which is during a huge correction and removed the candlesticks after the correction. Now, imagine you are facing a major downtrend as the chart below, how will you handle this situation? The stock price dropped from MYR3.00 to nearly MYR2.00! The downtrend last for more than 1 month! Will you sell in fear? Or will you still continue to hold? 

Nowadays, I believe there are very less investor who will hold their stocks for more than a year. They are lack of discipline, either sells in fear or affect by surrounding. On the hand, there are also many investors who are not able to maximize the profit from the huge uptrend.  Some had take profit after the stock drops for few days, some at 20% gain, some at 50% gain and maybe some at 100% gain.  

To become a very skillful investor, it needs a lot of experience and practice. Frankly speaking, even though if I was given a chance now to back to when INARI was only MYR0.60, I am still not sure whether I can hold through the whole period. Ask yourself, can your heart strong enough to handle the downtrend?

However, after you are able to survive through the downturn of the share market, you will see the bright side once again. But, whether you had enough bullets to come back again is another story.

Image result for motivation

Just to share some knowledge to help you to survive in current market.

1) Capital management

In current volatile market, it is very hard to hold for long term if you bought your stocks since last year. Even a very good fundamental stock was also going down. In order to minimize the risk, you may lower down the cash and shares holding ratio to around 50:50. If you are not confidence, then you may choose to stay aside from the stock market. However, there are still opportunities to earn money in current market, just that the possibility is lower. There are still companies which act very strong, for example Lii Hen, Top Glove, etc.

The first thing you need to do before stepping into shares market is to PROTECT YOUR CAPITAL. It is the most important and essential part!

 

2) Stock selection

After you had your portion of fund ready, choose stocks wisely.  Think like a business man and try to pick stocks with good catalyst. Focus Lumber is a good example. It is an export oriented company which benefits from weakening of MYR. Even though its price dropped from MYR1.70 to MYR1.20 in July, but now FLB come back to the level of MYR1.65 again.  Currently, there are three sectors which you can consider to look into.

  • Gloves
  • Furniture
  • Semi Conductor

When you pick a stock according to the current economy, you are able to minimize your risk once again.

 

3) Cut loss

I believe this is the most crucial part where most investors are not able to do it. After you bought in a stock, make sure you monitor it from time to time and ALWAYS set a cut loss point. My preference cut loss point is at around 5-7%. By setting cut loss point, at least you are able to protect your capital and your capital will not be lock!

During 2008 economy crisis, I believe there are many people hold their portfolio from beginning to the ending and then wait for the market to recover. They will wait for their stocks to back to the breakeven price. It might be half year, one year or even two years. Of course, there is no right or wrong. Everyone had their own method of investing.  But for me, you had wasted your time for few years without getting anything. Time is money; I believe if you can choose again, you will put all the money into fixed deposits.

On the other hand, those who manage their portfolio well will have enough funds to collect when market started to recover. They can easily gain more than 100%. FYI, GENTING dropped from MYR9+ to around MYR3 during 2008 and yet it managed to climb to MYR11+ after market recover. The opportunity is just in front of you. It is just depends whether you have fund to catch it or not. I believe those experienced and skillful investors are more excited to wait for the market to crash, rather than in fear. It is a very good opportunity for them.

Indeed, cut loss needs a lot of practice and discipline to execute. Some people not willing to lose even just 0.5 cent. Cut loss is a must in order to survive and protect your capital. FYI, the theory of 8:2 is actually exists, whereby out of 10 investors, 8 are losing and only 2 are earning. One of the reasons behind is they sell all the profitable stocks and keep all the losing one.

Two scenarios:

ABC is holding 5 stocks and he sells 3 of them when it gains 10% profit. He keeps another 2 and it had accumulated up to 20% losses. Even though his trade is 3 win 2 lose, but overall he is still losing 10%.

CDE is holding the same stocks as ABC but indifferent with ABC, he cut loss when 3 of them drop 5%. He continues to keep another 2 profitable stocks to maximize its return and now it paper profit had up to 25% each.

So, can you see the difference between ABC and CDE now?

As a conclusion, if you are able to apply the above three things, I believe you had minimize your risk to the minimum level. So, start from today let’s learn to become a discipline investor. If you are not satisfied with your portfolio, stop hoping for the market to turn good. It’s time to evaluate and make some changes to your portfolio.

Bear in mind, the opportunity only wait the person who is ready! Hopefully it is useful.

Just for sharing.

http://rhinvest.blogspot.my/

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  12 people like this.
 
Ricky Yeo 1. Protect capital and avoid permanent loss is critical, but this has nothing to do with volatility of the market, as long fundamental remain intact, selling is foolish, unless you found another opportunity than provide lower downside and bigger upside.

2. In the history of sharemarket, the biggest gain and losses normally happens right next to each other, in lumps, meanings the biggest gains are followed by biggest drops. Assume you stay on the sideline during the bear market, and wait until everything clears up, your portfolio return will be way behind the market in the long run. Unless you think you have the best market timing, and i think everyone thinks that they do lol.

3. Looking back the mirror is always easy, you would have convince yourself that had you bought Citigroup stock at $1 at the peak of GFC you would have made 5000% return as of today. But putting yourself at the peak of GFC, when US banks are falling left and right and lehman brothers are collapsing, do you think you would have the balls to buy Citigroup at $1?

4. Cut loss is only possible during the normal market situation, it is like trying to rescue fire because you didn't properly do your homework. Cut loss is possible when there are 'buyers' liquidity', when someone is willing to take the other side of trade. During the height of market panic, who is going to take the other side of your trade, you will cut your loss but at double digits.
05/09/2015 21:29
citychew_1886 Hi JT yeo , good explanation for the cut loss theory . i suggest to buy more if a good fundamental stock is falling down like there is no tomorrow. but the concern is you have to prepare some extra cash for this situation . i believe most of us will use all the cash especially during the bull market .
05/09/2015 23:20
albatraoz19 Seems like we are about to retest 1500 all over again. This is a good article.
06/09/2015 17:12
HITnRUN money concur all, rich becomes richer..thats the point
06/09/2015 17:40
Up_down FF has resumed dumping shares on 2nd Sep 15. FF's stakes in KLSE remains more than RM 10.7 billion. This year alone FF has disposed over RM 16 billion worth of shares. Slim chance in generating capital gain given the current weak sentiments. Capital preservation is more important. I'm applying 80/20 rule.
06/09/2015 18:11
Kevin Wong Some still stayed fully invested since 2010, some even before 2000!
The question is always whether ordinary investors should stay fully invested at all times for the long term, or try to time major market peaks and troughs.

Good luck everybody, happy and prosperous investing/trading.
06/09/2015 20:00
Ntpboon 此篇文章写得好。赞!
目前的股市,股民读了若能领会,必获益良多!

股市有涨必有跌,
是牛是熊难分别。
股民心情若纠结,
纪律止损是秘诀。
06/09/2015 21:13
ckwan11d Good, as always.
07/09/2015 07:11
RicheHo Thanks for all the comments! Appreciate it :)
07/09/2015 11:27
Dummy Blackie RicheHo, never know you wrote so many good blogs after your comment to mine... thumbs up...
11/09/2015 11:48
RicheHo Hahaha Dummy Blackie, thankiu for your compliment. Sama sama belajar ma :)
11/09/2015 12:07


 

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