Saturday, 1 November 2014

So Market Didnt Crash


So much so for the bear market that was widely anticipated to kick in with the recent market correction. It turned out that DJIA dropped about 7% before swinging up to close at historical high last night, all in the span of a month.

I read about many fellow investors in forum dishing out warnings and cautioned others to seek cover. Some urged others to cash out the shares that have earned them profit to raise the level of cash for use during the impending crash. Others shouted out to cut loss and sell out regardless of amount loss, positioning of counters in their portfolio, and the business fundamentals.

But look at where the market is now?

Well this sort of market volatility is damn common, as I read somewhere that market suffered a 10% drop on average once in 10 months (or a year). Its just that human beings have short term memory as to how often and how bad a real bear market can be. Look at the market drop on a one year scale, it looks scary; but zoom out to a 5 year scale, its merely a minute hiccup. Call a spade a spade; call a correction a correction, not a crash. Correction comes and go as often as rainfall in the afternoon when the morning was all bright and sunny.  Just make sure that your investment hypothesis still hold and you still have faith in it.

We cant dance along with the market. Our mind is not wired to withstand that sort of wild swing, as human beings seek stability and sense of knowledge about future. Should we jump in and out with the market, liquidate holdings at first sign of trouble, and jump back in at this stage, we will wear ourselves out mentally. And soon we wont be able to make wise decision. 

So whats important is to have a set of pre-fixed rules to fall back on, to guide you during fluctuations. It could be in terms of capital management, specific shares action, or others. It should be as succinct and as simple as it could be, to the likes of ‘if xx happens, do yy’. Keep it clear, simple and stupid. The crux is to remove emotions from your action, and not let yourself be persuaded by exaggerated news and highly sensitised titles to act in a rush. And these rules should not change. Or at least not during times of volatility (you can fine-tune the rules later when market is peaceful to suit your investment style better)

And yes almost all of us have a smartphone. With smartphone come stock monitoring apps. These apps are a bane to our investment journey during times like this, constantly shouting out share price into our face, flashing market news on the screen, it makes sitting still all the more difficult. Of course the presence of friends or colleagues who turned into expert commentator during this time so active at sharing latest share price over Whatsapp doesn’t help either.

Well, to counter this evil smartphone app, I removed all stock holdings from the watchlist. I disabled the push notification function. This made it easy for me to avoid checking share price. And I had been able to maintain this habit for a while and only dropped in to check on any company and business specific news. As for the people around you, you just have to find a way to filter off their comments.

And right now as I am typing this, I took a glance at the 6 month chart of some of my stocks, and realised that some of them dropped quite a bit, but had since recovered to pre-fall price. Its as if the share price drop didnt happen.

Then why the hell are so many ‘investors’ being total big suckers for market news and price update every minute, and allowing themselves to ride through the emotional roller coaster. Beats me.

So all these fall in price, pseudo crash, looming bear market actually are transparent to me simply because I chose to shut them out. They may be perfect conversation topics among friends, to complain about how much you had lost, bemoaned that you should had sold out earlier, and make you a better conversation starter among your social circle. But these sort of things had no place in the grand scheme of your investment journey.

If you did worry and take action in a hurry and regret it right now, it is important to sit down and reflect on how did you feel back then, what were your emotions, what went through your mind, what were the flow of thoughts that caused you to act hastily? Write down these emotions on a note book, take them out to read frequently, and think back about those moments, to strengthen you mental capacity for future corrections which can arrive anytime. 

As for me, life goes on. No difference. And it feels good to live outside the frantic market talks and actions, knowing that there is nothing wrong with my stocks, but only Mr Market making a big fuss out of it.

3 comments:

  1. so did you make any purchase during this recent correction?

    ReplyDelete
    Replies
    1. Hi felix. Yup bought a small amount in new stock.. but didn't manage to buy into existing holding.

      How about u? Grabbed any of the 8 stocks in ur watch list?

      I like your company analysis articles.. explain business fundamentals in easy layman language.. if possible lets cross share blog link.

      Delete
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