Needless to say, it has been an extremely challenging 18 months for the world as we all faced the pandemic that has practically changed all our lives. On top of losing loved ones, the virus crippled the economy for a good part of the last one year and a half. Needless to say, the loss in income has been devastating to many.
The pandemic also wrecked havoc on the financial markets. Many investors and traders lost a great deal of money in stocks, especially during the early phase of the outbreak, as global markets plunged and were in a free fall mode. However, there were many who also took the opportunity during the crash to make a lot of money by scooping out ridiculously priced assets from desperate sellers and distressed sales.
Today, as we move into the endemic and recovery phase of the pandemic, I will like to share my personal investment/trading lessons that I have learnt from this experience.
This may be a controversial statement , especially if you ask most finanncial consultants or fund managers who generally advocate that we should stay FULLY invested in the stock markets at all time. I believe asset allocation is about understanding the stock market cycles. Recognizing or gauging which part of the cycle we are in, could help us make a calculated decision on our asset allocation model at any one time. Just like everything in life, cycles and patterns will always repeat themselves!
If we were fully invested at the start of the pandemic, we would not have had the chance to scoop up some of the best “once in a lifetime” buying opprtunities! In fact, back in 1997 during the Asian Financial Crisis, I remember watching in disbelief how Maybank and Tenaga were trading at a near low of RM2.00! I had invested what little money I had in Maybank shares at RM4.00 but did not have any additional capital to average down my investment at the lows. Well thankfully, the subsequent recovery of the stock made up for my lack of knowledge in the asset allocation department!
2) DO NOT OVERLEVERAGE
One of the most historic moves in the markets happened during the pandemic when the US crude oil price fell below zero in April 2020! The biggest casualty from this dramatic and sudden fall in price was a Singapore oil trading company called Hin Leong Trading. The company used a lot of a leverage by buying up the WTI crude oil futures contracts, betting that the price would rise. However, the prices fell swiftly causing huge short term margin calls which eventually bankrupted the company. Had the company been able to withstand the short term drawdown,Hin Leong would still be in business today and reaping the rewards of the USD80 oil price!
3) DIVERSIFIED PORTFOLIO
During the initial stage of the pandemic in March 2020, while the stock markets were crashing, only one asset class was outshining the rest, and that was GOLD. It was viewed as a safe haven asset, to hedge against any armageddon scenario that may happen.
Therefore, I believe owning some gold in any portfolio is very important as any unforseen macro event could spark a sudden surge in demand for the yellow metal. As we have also seen in recent times the spiralling increase in inflation is always a base case for owning some gold! Many have made the case for owning cryptocurrencies as a safe haven/ diversification but that proposition is a bit too volatile for my taste!
As we enter the recovery phase in the economy and stock markets, many stocks have already recovered handsomely. Is there still room for stocks to go up further? In my opinion, the easy money has already been made as the gains in “recovery themed” stocks have already gone up a lot. Nevertheless, money can still be made, but stock selection is key.
3 BEST CURRENT TRADE IDEAS
1) FAJARBARU BUILDER BHD (7047)
“A GEM IN THE CONSTRUCTION SECTOR WITH GREAT POTENTIAL”
2) TOMEI CONSOLIDATED BHD (7032)
“A GREAT PROXY TO OWNING GOLD”
3) WONG ENGINEERING BHD (7050)
“ A VERY HIGH CONVICTION TRADE SETUP IS DEVELOPING!!”
I WILL BE POSTING A FULL ANALYSIS ON WONG ENGINEERING BHD IN MY UPCOMING POST! STAY TUNED AND HAPPY TRADING!!
Disclaimer: This blog is created for sharing of trading ideas only. It is not in any way or form meant to be an inducement or recommendation to buy or sell any stocks.Consult your financial consultant before making any financial investments.