How is everyone? I hope you are at peace after a week of turmoil. As we might have noticed since last week, indices around the world going down or up by 5-10% a day is not something uncommon anymore. Not to mention, this happens across all asset class including commodities like oil and gold. We are now in a highly volatile period. What caused this? The answer: Sentiment.

Sentiment is the manifestation of the belief of the majority. As Dow Jones Industrial Average went up 9% on Friday, many thought they see the light at the end of the tunnel. Many also thought, so many bad news in a week and the global stock market have dropped about 15-20% generally, and many companies are already trading at multi year low price, it’s time to bounce back. But how true is that?

Over the years after the 2008 subprime crisis, debt in both businesses as well as household swelled to a new record and the world has never had so much debt. It not only happens to advanced countries but also many developing countries including Malaysia. What’s scary is that many countries carry out quantitative easing (QE) and implemented extremely low interest rates, which had actually fuelled the growth of debt to an even bloated status.

And we have COVID19, the scary needle that seems to be poking this giant debt bubble by halting our daily routines and business activities. Cities are locked down to prevent spreading, business activities are forced to stop and many events have been postponed or cancelled. Transport and tourism industry are badly hit due to low human traffic flow across the world, the list goes on and on.

Well you might thought there were already many bad news announced last week, how much worse can it be? Well, below are some references you can go through if you are interested. Long stories short, Apple, Walt Disney and Zara had announced to close their business amid the spread of COVID19. These are multi billion companies with strong cash flow, while they might be able to withstand such sudden disruption in their business, what about the rest of the SMEs across the world? It will eventually lead to failure to service their loans and ultimately more business might collapse and people suffer from loss of jobs.

As Share Panda and I had a chat yesterday, we think that low can really go lower, and personally I think this is just the beginning. If you have cash and wish to invest, I hope you do more research and reading to enhance your fundamental analysis, investment skills and ideas.

Choose a company wisely, now is the time fundamental strength above everything because once cash flow is stuck, a company might suffer and collapse. Only choose company with strong cash flow.

Do not rush in with all your capital, buy in stages because low can really go lower, and even lower.

Buckle up guys! Brace yourself as there are a few more waves to come.

Written by
Rich Son Poor Son

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