Stock market volatility is back in action after so long now. I've been investing the past 4 years and most of the time the Singapore market has been rather stagnant. The only time I encountered a severe market drop was in 2012 when several European countries were having trouble which was called the sovereign debt crisis. It was a serious issue as it can mean countries going bankrupt which will trigger a big global recession. In 2007/08, Lehman brother collapsed during the sub-prime mortgage crisis. In economics class, I learnt that it was the second greatest financial crisis after the great depression. As I'm writing this, the market is still dropping. In fact, the worse one day drop I saw just happened a few weeks ago with STI going down -127 points.
Credit: https://pixabay.com/en/crash-statistics-chart-graphic-bar-215512/
So what to do when the market is dropping now? Do you feel panic or do you feel its an opportunity? Let's explore this together.
Why is the market dropping now?
By now, all of us would have known the reason for the market drop. China has devalued its currency and it has shook the financial markets worldwide. Other Asian currencies such as the Malaysian Ringgit, Indonesia Rupiah and even the Singapore Dollar went down as well. A drop in major currencies does signify an impending slowdown or even a crisis as seen during the 1997 Asian financial crisis. The Malaysian Ringgit is still on a downward spiral dropping to $3.07 Ringgit against $1 SGD now.
What To Do When The Stock Market Keeps Going Down?
Some of the stocks in our portfolio may already be losing money and this is quite common during a bear market. To say the truth, I do not feel any panic even when some of my stocks are in the red. In fact, I feel quite comfortable as of now. All along, I've been prepared for a stock market downturn as it has been talked about for the past 2 years. Finally we are starting to see some volatility. It is an opportunity for some but a fear for others.
I've only invested about 30%+ of my capital in the market as of now. I still have quite a lot of money to deploy during times of crisis. Investing during market downturns can be scary for a lot of people. Chances are that when we buy a stock, it will go down further. This is what happens during a bear market. As the market drops, low can definitely get lower. We may have to average down at least 3 times before the market starts to go up again.
Opportunities during a bear market
When investing during a bear market, we can get good companies at a significant discount. Some of the blue chips companies have already dropped more than 30% which makes them much more attractive than the beginning of this year.
Almost all the stocks look much more attractive than its previous highs but it is always the case that attractive can get more attractive. No one will be able to know how low the market can go so it is important to buy in tranches and allocate our investment capital efficiently.
For me, I would set aside money to buy stocks in at least 3 tranches. For example if I set aside $6000 for a particular stock, I would buy in at $2000 each time. When to buy in for a stock has to depend on our investment objective. If we're investing for income, looking at dividend yields of 6% or more may be good for strong counters such as Capital Commercial Trust. We should look at the sustainability of the dividends as well and not just on the current dividend yields.
The market may drop further or will rise after that which nobody will know exactly how things will evolve. As investors, what we should do is to manage our risk well and invest consistently at better valuations. There is always opportunities when the stock market goes down. This is certainly what a lot of us have been waiting for.
Are you prepared to invest more during a bear market?
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