Stay calm and carry on investing amid turmoil
Asian stocks tumbled, driving Japan's Nikkei 225 Stock Average down 11 per cent, and U.S. futures slumped on concern the deepening credit crisis will push the global economy into a recession.
Jonathan Kwok
The Sunday Times
Tuesday, Sep 03, 2013
SINGAPORE - Patience is a virtue that we don't find often in Singapore - and that's putting it mildly, as one look at the scrums on the MRT and buses will show you.
We even seem to be in a perpetual hurry on the footpath, without much time to stop for a breather.
I admit I'm guilty of this as well but one area where I've managed to develop patience and calmness is in the stock market.
It doesn't come naturally, especially when you look around in recent weeks and see shares across the globe in free fall.
It is very disconcerting to say the least to watch your stock holdings fall deep into the red. Some investors may even be losing sleep over it.
"The markets are terrible, just terrible," a colleague lamented last week, shaking his head. I did my best to assure him, but I'm not sure it helped much.
I used to be one of those panicky ones. One of my early investments was in a blue chip that - almost on cue - dropped immediately after I bought it.
Nothing seemed to be able to stem the bleeding. I contemplated cutting my losses after it dropped 20 per cent, but couldn't bear to do so.
I was kicking myself within the next few months.
The stock was like a hapless, drowning swimmer with lead weights tied to his feet.
By the time it was down by 40 per cent, I had given up the idea of trying to claw some cash back.
Some level of despondency set in but my mindset changed somewhat after I read some of the ideas of legendary investor Warren Buffett.
For all that is written about his stock-picking prowess, I believe the key to his wealth lies in his temperament - his ability to keep cool under stress, regardless of whether the stocks are plunging or on a rampant bull run.
He advocates holding good companies "forever" - presumably to our graves.
No matter if the price plunges or soars, Mr Buffett will never sell his holdings in his core group of very strong companies, including beverage giant Coca-Cola. I related his mantra back to my perpetually- in-the-red blue-chip investment.
Was it a strong company? Yes. Did it pay dividends annually? Yes as well.
Is it likely to ever collapse? No, I told myself. The stock is a market leader, and if it collapses it is pretty much financial Armageddon for Singapore.
I started to see that stock gyrations are pretty much part and parcel of market and industry cycles and we should not be affected as long as the company remains sound.
The concept of holding a stock forever, even to my deathbed, is starting to sink in.
After the United States central bank announced a third round of massive money-printing last year, the value of my holdings soared along with global markets.
I resisted the temptation to sell my shares, even when I was 20 per cent or 40 per cent in the money.
After all, after the sale I don't know if I'll ever be able to buy them back at the same price - and I'm very confident about the long-term prospects of these stocks as I have done my homework on them.
Unless an emergency crops up, I can see myself selling only if I need income after retirement. If I retire rich, I'll leave the holdings in my estate to be distributed after I die.
That's presumably a long way down the road but this is how long I intend to keep the shares.
And while I used to get panicky during market crashes, I now treat these as chances to accumulate positions in stocks that I have already identified as solid.
But even in the process of buying, a level of zen is needed.
For the past year I've considered the local market to be grossly overvalued, owing to the billions of dollars flowing in from US money-printing.
It has been hugely frustrating - tigh tening my belt and saving a chunk of my monthly take-home pay only to be locked out of the market due to a bubble.
I've refrained from making purchases at silly prices and, in a sense, the market tumbles over the past two weeks have vindicated my patience.
The market is still a bit too high for me - or at least not low enough to make bargain buys. So I'm just continuing to wait, and if stocks don't drop to my desired levels, I'll be fine as well.
Mr Buffett, a baseball lover, compares investing to the sport. Every day, the pitcher throws a ball at you, giving you the chance to make a purchase. In the Singapore context, it would be, for instance, the chance to buy DBS Group Holdings at $16.
You don't actually lose anything if you don't swing your bat. The next day, you will get another ball, and maybe DBS would have dropped to $15.50 by then.
The key advantage of being young is that we have decades ahead of us to wait for market cycles, which in any case are becoming shorter and shorter.
For every $16 DBS chance that we give up, there's always a chance of an upcoming crash taking it down to $12 or less.
As the new trading week starts on Monday, we can be sure that volatility will continue.
Although I may curse and swear at the traffic as I take the bus to work, the crazy wild swings in the stock market sure won't be getting me hot under the collar.
Get a copy of The Straits Times or go to straitstimes.com for more stories.
Asian stocks tumbled, driving Japan's Nikkei 225 Stock Average down 11 per cent, and U.S. futures slumped on concern the deepening credit crisis will push the global economy into a recession.
Jonathan Kwok
The Sunday Times
Tuesday, Sep 03, 2013
SINGAPORE - Patience is a virtue that we don't find often in Singapore - and that's putting it mildly, as one look at the scrums on the MRT and buses will show you.
We even seem to be in a perpetual hurry on the footpath, without much time to stop for a breather.
I admit I'm guilty of this as well but one area where I've managed to develop patience and calmness is in the stock market.
It doesn't come naturally, especially when you look around in recent weeks and see shares across the globe in free fall.
It is very disconcerting to say the least to watch your stock holdings fall deep into the red. Some investors may even be losing sleep over it.
"The markets are terrible, just terrible," a colleague lamented last week, shaking his head. I did my best to assure him, but I'm not sure it helped much.
I used to be one of those panicky ones. One of my early investments was in a blue chip that - almost on cue - dropped immediately after I bought it.
Nothing seemed to be able to stem the bleeding. I contemplated cutting my losses after it dropped 20 per cent, but couldn't bear to do so.
I was kicking myself within the next few months.
The stock was like a hapless, drowning swimmer with lead weights tied to his feet.
By the time it was down by 40 per cent, I had given up the idea of trying to claw some cash back.
Some level of despondency set in but my mindset changed somewhat after I read some of the ideas of legendary investor Warren Buffett.
For all that is written about his stock-picking prowess, I believe the key to his wealth lies in his temperament - his ability to keep cool under stress, regardless of whether the stocks are plunging or on a rampant bull run.
He advocates holding good companies "forever" - presumably to our graves.
No matter if the price plunges or soars, Mr Buffett will never sell his holdings in his core group of very strong companies, including beverage giant Coca-Cola. I related his mantra back to my perpetually- in-the-red blue-chip investment.
Was it a strong company? Yes. Did it pay dividends annually? Yes as well.
Is it likely to ever collapse? No, I told myself. The stock is a market leader, and if it collapses it is pretty much financial Armageddon for Singapore.
I started to see that stock gyrations are pretty much part and parcel of market and industry cycles and we should not be affected as long as the company remains sound.
The concept of holding a stock forever, even to my deathbed, is starting to sink in.
After the United States central bank announced a third round of massive money-printing last year, the value of my holdings soared along with global markets.
I resisted the temptation to sell my shares, even when I was 20 per cent or 40 per cent in the money.
After all, after the sale I don't know if I'll ever be able to buy them back at the same price - and I'm very confident about the long-term prospects of these stocks as I have done my homework on them.
Unless an emergency crops up, I can see myself selling only if I need income after retirement. If I retire rich, I'll leave the holdings in my estate to be distributed after I die.
That's presumably a long way down the road but this is how long I intend to keep the shares.
And while I used to get panicky during market crashes, I now treat these as chances to accumulate positions in stocks that I have already identified as solid.
But even in the process of buying, a level of zen is needed.
For the past year I've considered the local market to be grossly overvalued, owing to the billions of dollars flowing in from US money-printing.
It has been hugely frustrating - tigh tening my belt and saving a chunk of my monthly take-home pay only to be locked out of the market due to a bubble.
I've refrained from making purchases at silly prices and, in a sense, the market tumbles over the past two weeks have vindicated my patience.
The market is still a bit too high for me - or at least not low enough to make bargain buys. So I'm just continuing to wait, and if stocks don't drop to my desired levels, I'll be fine as well.
Mr Buffett, a baseball lover, compares investing to the sport. Every day, the pitcher throws a ball at you, giving you the chance to make a purchase. In the Singapore context, it would be, for instance, the chance to buy DBS Group Holdings at $16.
You don't actually lose anything if you don't swing your bat. The next day, you will get another ball, and maybe DBS would have dropped to $15.50 by then.
The key advantage of being young is that we have decades ahead of us to wait for market cycles, which in any case are becoming shorter and shorter.
For every $16 DBS chance that we give up, there's always a chance of an upcoming crash taking it down to $12 or less.
As the new trading week starts on Monday, we can be sure that volatility will continue.
Although I may curse and swear at the traffic as I take the bus to work, the crazy wild swings in the stock market sure won't be getting me hot under the collar.
Get a copy of The Straits Times or go to straitstimes.com for more stories.
