Wednesday, 4 July 2018

Silver Linings in This Down Market

Singapore stock market undergoing some rough patch now, as STI has dropped about 11% from 3,640 to 3,240.

Once in a while the market will catch a cold, and this is when all the negative news will surface prominently in media. Future looks bleak and stock market seems to be falling off a cliff. Human nature, being risk averse, will start thinking about getting out of market, avoiding the downturn until the coast is clear.

But let's remember that market always climb a wall of worries, and eventually it will recover. We were even able to survive and prosper post-2008 GFC, the worst downturn since Great Depression. It should not be different this time round.

Downturn Enables Industry Consolidation 
Very often stock market downturn precedes an industry downturn, during which the sector contracts with lower revenue and less earnings. Companies embark on cost cutting or retrenchment. The smaller companies or those with weaker balance sheets might fold.

It is during this period that the more established players can go on an acquisition spree, buying over smaller firms at distressed price. Industry might consolidate, resulting in majority of market share in the grasp of fewer larger players which are able to grow their revenue when industry recovers.

So these companies would emerge stronger and prosper thereafter. If you hold their shares, stay positive and look forward to their stronger growth few years down the road.

Chance to Buy Good Shares Cheaply
Those companies in your watch list are now trading at lower price. Should their fundamentals remain sound, outlook is still good, this is a chance to scoop some shares cheaply.

Of course, cheap is relative. What is cheap today can get cheaper tomorrow. Nobody knows where is the lowest price.

This is why I always advocate do not fire all your ammo at one go. But in two or three batches. If price rises after your purchase, all is good. If price drops after your entry, be happy that you can now buy at even a lower price. Never use up all your funds in one purchase, leave some as buffer.

In stock market, those who are far-sighted are able to earn profit at the expense of short-term focused, impatient investors. Do not be overly concerned about daily price drop, but have faith in your companies to be more valuable few years later.

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