Investment Reflection: Covid-19

It has been slightly more than 2 years in the market and this is the first time I am experiencing a viral virus outbreak with my capital invested in the market. Although, the virus outbreak is still ongoing in Singapore, it is still worth sharing a few pointers that I have learnt as of now. 

#1: It is difficult to manage one’s emotion

You might have seeYou might have seen posts or articles where they discuss how much the stock market will drop with the virus outbreak going on. For example, I have seen posts where people shared that STI was down 30% during the 2003 SARS outbreak. I think this scared a lot of people including myself. Some people would try to panic sell in order to reduce their positions amid the virus outbreak. This is normal for investors to react as it is not easy to manage one’s emotion in this situation. Investors would like to lock in profit or stop further losses before things get worse. There was a sell down shortly after the market opened after CNY long weekend. I was conflicted whether to ride the volatility or reduce my exposure. I succumbed to the temptation of the latter and I actually felt relieved as if all my burdens were lifted off my shoulders. Well, I did feel regret that I didn’t act fast in reducing my position quickly. As this is a black swan event so we did not really have a plan on how to deal with this.

We can plan out what trades we can execute if such an event were to happen again. For example, one can set aside capital to average down to capture the opportunity to buy at a lower price. Also, we can also look into buying defensive counters or counters that will benefit in this situation so as to have a buffer in to buy defensive counters such as Gold ETF or counters that will benefit in such event so as to reduce mark to market losses every day. What’s more important is that we should not sell stocks to lock in profit or minimise losses and hoping to buy back later at a lower price as we cannot predict future stock market movement. 

Lesson Learnt: I admit that I am not as prepared as investors who have already been through SARS outbreak, Global Financial Crisis as this is the first time encountering such a black swan event. This event has made me understand that it is important to have a plan and stick to it. Although forum is a good place for investors to learn from each other, people might unintentionally or intentionally spread fear to others and thus some might get influenced. This made managing one’s emotion more difficult. it is important to ignore such unhealthy noises and stick to the plan you believe in.

#2: Selling stocks and hoping to buy back later at a lower price is a fool’s game.

So you thought that you can buy later at a lower price after selling some or all of your positions, only to find out that the market recovered immediately after you sold. You realised that the US market has recovered and is breaking new highs. This made you think that the worst is over and became FOMO because you do not want to miss the opportunity to ride the uptrend only to find out once again the things changed for the worse. 

It happened to me so I got back into the market one day before the DORSCON level was raised to Orange. What to do, if I were to sell to protect my capital, I have to incur losses and would have wiped out the profit that I locked in prior to that. I was feeling stressed about it until I crafted out a plan over the weekend to average down if the market reacts negatively to the raise in DORSCON level. One mistake that I made is to re-enter the market due to FOMO and buy in with a lump sum amount instead of purchasing it in batches. If I were to buy in batches, I will have more bullets to average down in the case the price goes down. Nonetheless, I am thankful that despite the foolish actions that I made, I still have capital to weather the losses and average down if necessary. 

Lesson Learnt: It is indeed that selling stocks and hoping to buy back later at a lower price is a fool’s game. For those who made this action is praying that the market can be in their favour by going even lower but no one can predict the market movement. If we were to stay invested, we won’t be able to miss out on the uptrend opportunity if the market recovers faster than expected. On the other hand, if the market goes against our will, we can average down on the condition that the company we have invested in is still fundamentally sound. As for averaging down, the point is that we do not know at what price they will bottom so it is important to average down in a systematic way such as buying in at every 10% or 20% paper loss to reduce cost price. This way, we can conserve our capital and also hope to catch the bottom eventually. It is also important to not be fully invested and to leave enough capital to average down 2-3 times. Some mentioned that warchest acts as a buffer for emergencies as well as a good check on emotions during volatile times. As mentioned, I am relieved that I have enough capital to average down. If I am fully invested leaving behind no bullets to average down, I will definitely make more silly mistakes. 

#3: Dollar Cost Averaging might be an option for those who can’t manage emotions well. 

It might come as a surprise that I was only stressed and making mistakes in stock picking. As stated in my previous blog article, I started investing in IVV with FSMOne in January and I am still continuing making purchases despite the situation that is happening now. The reason for not feeling the same way is because I am always buying at small amounts and that Dollar Cost Averaging enables me to average down if the market is on a downtrend. As I am still a NSF where my capital is limited compared to other investors who have a full time job, I feel that I have higher margin of safety to stay committed to regular savings plan than to stock pick in lump sum. 

Lesson Learnt: So this event has made me understand that stock picking is not for everyone as it might make people feel FOMO and to chase for prices. With dollar cost averaging, we have the discipline to purchase small amounts regularly and most importantly, it is more healthy for our emotional well-being. At the end of the day, health is more important than making our money work harder. 

 


2 thoughts on “Investment Reflection: Covid-19

  1. I was in the markets during the early 2000s. There wasn’t a -30% drawdown in STI in 2003. Most of that damage actually occurred the year before in 2002 (which didn’t have anything to do with SARS). During the critical SARS period for Singapore from mid-Jan to mid-Apr 2003, the STI dropped about -10%. HK which suffered much more than us (10X the number of deaths) experienced -15% drawdown in Hang Seng from Jan to May. The 2nd half of 2003 was wildly bullish for both cities, with stock indices up big double digit returns within 6 months.

    As a comparison, take the worst pandemic in modern recorded history. The Spanish flu pandemic from 1918-1920. It’s actually the H1N1 virus, but they didn’t have effective anti-virals nor vaccines then. More than 1 in 4 of the ENTIRE planet’s population got infected. 50 MILLION people died, equivalent to almost 3% of the human population at that time. And what did stocks do? I only have info for the Dow, but it dropped a grand total of less than -12% during the worst part of the pandemic. And US was just as affected as other parts of the world.

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