Oh what an excellent time period to be in, with information and social media overload, to be able to examine and backtrack to see the plethora of crowd sourced advice on various platforms.
I called to de-risk portfolios and raise tactical cash on 13&16March2020. I did a leveraged long position on Singtel when it was $3 and thank goodness the position was cut at a smaller loss.
I remember admitting intellectual humility that cutting positions early in the morning than in the afternoon was not optimal. Then came the jeers and sympathisers. During those periods had people talking about deploying their war chests etc. Then there were those DCA (Dollar Cost Averaging) advocates as well as people calling out for the market bottom.
18March2020 will be by far, one of the most wicked days where the market rose in the morning, sucking in people to go long, and slashed their throats with a decline continuing to the next day 19March2020 and many listed REITs were battered down as well. This on the back of zero interest rates courtesy of the US Federal Reserve.
There is specific advice and general advice, I am toeing the line that separates them because to give specific advice without a license will run afoul with regulations. To manage this, many tout general financial literacy sharing in social media platforms.
This post aims to explain and connect the investment advisory framework which I swear by and adhere to, with a real life situation that is developing, to also let people know the depth of the words,”Make your own play.”
Starting from the top, observe that there are 2 iterative loops in the portfolio management process. The counter clockwise loop has to do with the investor nuances. (investor loop) The clockwise loop has to do with the market. (market loop) These 2 loops combine into 1 process, telling you that both are equally important. For more elaboration on those 2 loops, read here. (Thou shall not repeat what has already been said. Here’s to show consistency across all blog posts.)
In formulating the investment plan, the citation from CMFAS is consistent with the market loop. There has to be a view, a choice of instruments to express that view and subsequently, costs and risks must be managed. For more elaboration on the framework of formulating an investment plan, read here. (Thou shall not repeat what has already been said. Here’s to show consistency across all blog posts.)
Even scalping fits into the framework and you can extract more distillate in forming a detailed investment plan. For details, read here. (Thou shall not repeat what has already been said. Here’s to show consistency across all blog posts.)
Moving down the info-graphic let us discuss the market loop a bit, there are nuances to the choice of instruments in expressing whichever investment views one might have. For elaboration, read here. (Thou shall not repeat what has already been said. Here’s to show consistency across all blog posts.)
And seriously for this time period of writing, in a falling market, you ought to pass/clear your CKA/CAR to have access to instrument/s that can short the market. Even you are just seeking to protect your portfolio, such instruments can help. Yes, adviser representatives can tell you to invest because inflation robs your wealth, but this period proves that a falling market can rob your wealth 10x (or even more) than inflation. (Thou shall not repeat what has already been said. Here’s to show consistency across all blog posts.)
Moving on to the investor loop, 2 heuristics come to mind instantly, RRTTLLU and RDILMT. (Thou shall not repeat what has already been said. Here’s to show consistency across all blog posts.) Run please run, if your adviser representative cannot take you through them.
Moving forward. (The Dynamic Craft)
The future is not cast in stone but it is dynamic, and it should not prevent us from formulating plans. If an investment view is wrong (nothing wrong with that), cut, take the necessary measures and formulate another view. Repeat the framework, the framework does not guarantee positive outcomes by the way. This whole post shows the number of blind spots there are. Other real life stories recorded can be found in (1) Reading to the right side of charts and (2) Wheelock Case.
Face it. If you do not learn to manage investment risk now, you will not be able to manage investment risk in future. (simple enough statement) And I know why it can be difficult NOT because of competency, it is negative marking.
Back to the information avalanche and crowd sourced investment advisory on social media.
DCA (Dollar Cost Averaging) is not perfect. This period shows the importance of exit point weakness of the approach. It is a valid approach no doubt. For more elaboration, read here.
There is going to be more and more financial blogging sites springing up and you as the reader will have to separate the weeds from the wheat to discern biased marketing fluff from timeless applicable knowledge. This post aims to be as wholistic possible and is proof that investment advisory is too multi-faceted to be presented in a linear written form hence the peppering of links to deliver a consistent message of truth. Every individual is unique and financial advisory is a craft. But there is a way to be as objective as possible while embracing the diversity of individual profiles.
As a record of my view moving forward, my opinion is as follows:
There is massive, really massive support from central banks. US FED slashed rates to zero, ECB goes on bond buying. When COVID19 is over, this massive liquidity is going to drive markets up. So yes, a rebound is for sure. But not all rebounds are V-shaped. It can be U-shaped, or W-shaped. I am definitely not putting it at V-shaped. I am nonchalant to alternative investment views because I do see people buying on each dip as well as people continuing to short the market. The market is big enough to accommodate all kinds of investment views, not all will be correct that’s all. Want to choose a strategy, click here.
When will it be bottom is on everyone’s minds. COVID19 war is fought on 3 fronts. Vaccine, cure/treatment and jamming transmissions. A race for a vaccine is underway, a fierce one. A vaccine will boost market recovery confidence definitely, but its timing is not certain. There is an expectation of 9 months at least, but it might be accelerated to within the year, who knows. Medical professionals in hospitals are focused on attending to the sick right now, doing the best they know how. The impact on economies come from the measures to jam transmissions.
So for me, until I see a rollback of social distancing measures, I would refrain from big long positions. I would selectively nibble at good discounted stocks in DCA fashion. China, has achieved 2 consecutive days of no new internal COVID19 cases, only imported cases. China has a 2 month head start in achieving this. I believe Singapore can achieve the same. However, I cannot say the same for our neighbouring countries. So things will likely drag.
I also know things will be different post COVID19. It is the biggest experiment on social distancing communications and slated to persist. Investment views get altered, including the views that were established prior to COVID19. I will not share them here. They are for my clients who pay good money via wrap fees through the securities advisory service which I provide.
Make your own play.