As we are all aware of, over the past three months, the stock market has been super volatile and there were a lot of opportunities to scoop many fundamentally sound companies at a value for money price. However, due to reasons that I will be sharing below, I have not bought anything during this "Stock Market Sale"
- We have sunk into recession, but we won't be getting out of it anytime soon. In fact, I think it's just a dead cat bounce for the recent runs, and the market is going to crash furtherIt is no doubt that we are in a recession, a fast and unique one which laid off more people in 3 weeks than the Great Recession had in 10 months in the United States. I doubt that we are able to get out of it as quickly as we slipped into it, given that the global economy is severely impacted and until the cure is launched, it is unlikely that people will be able to return to their normal lives and gain confidence in the economy, which means personal and company spending will still be low, driving lower demands and corporate will be making lesser profits.Of course, governments have been trying to ease the impact and have rolled out various initiatives and assistance, to the extent that the interest rate is yelling "Come borrow from me!" Even if businesses were to borrow money from the banks to tide though this, the situation is filled with so much uncertainty that even if the banks were to approve, it is unsure if the business can still generate enough profit to pay back the loans.What happens when you give out too many loans to people/businesses who don't have the capability to pay up? Ah... didn't we already learnt that in the Great Recession history class?So while there has been multiple mini bulls and the governments all over the world have been trying to paint a less gloomy picture despite the statistics, I'm still expecting another crash coming along the way. However, this doesn't mean that it's not a good time to buy now, because if you were to consider the risk-reward factor, it is still a good opportunity to enter the market now or in near futureThe market already had a major crash. Even if it were to crash further, it is unlikely that it will go down by that magnitude again (e.g. probably 20-30% instead of the initial 50%). However, if it were to recover, there's a higher probability that it will reach close to the peak, or even exceeds it, which means a 200% gains (assuming you bought it at 50% off from the last peak.So the decision to purchase makes sense, but it is still a risk that I'd rather not take due to my second reason.Then again, I may be wrong, but I would make investment decisions based on what I think it will be, rather than follow the herd mentality to buy in when there seems to be a run. After all, if I were to really miss the boat because my assumptions were wrong, I don't blame anyone, and money not made is not money lost
- My emergency fund is not enoughAlthough I had set aside 10 months of emergency fund, I don't think it's sufficient enough to give me a peace of mind. Even before the Covid-19 disaster, the job market was already contracting. I personally know more than 5 friends who graduated from local universities and took more than a year to land onto a job, out of which only one managed to get a permanent position. The longest took 17 months. Guess how long it would take to get a job in this recession?While I am grateful that I can still work from home and earn regular paycheck, I couldn't help but think of the possibility that the company might decide to lay off staff to cut costs, especially when my industry is highly competitive. Furthermore, being able to work from home means that your work can be outsourced to other countries where manpower is much cheaper than in Singapore, so even if operations were to resume as usual, there is still a chance of losing your job if you are deemed replaceable or redundant by the company.As the saying goes "Recession is when your neighbour loses his job, depression is when you lose yours"If I were to lose my job, I want to be able to still tide through it with lesser financial worries and without getting too depressed by it, therefore I have decided to beef up my emergency fund to 24 months. Indeed it may be a wasted opportunity to hold that much cash instead of buying good companies that pays attractive dividends or have good chance of rebounding and exceeding its last peak, but I still stood that having a piece of mind and a good night sleep is priceless.Furthermore, my family household expenses have been dependent on my Dad, whose income is impacted because of the circuit breaker, and he is due for a surgery once the dust of Covid-19 is settled (hopefully soon). After the surgery, he will not be able to work for a month, and that too will affect his income due to his industry. Thus, I think it is only right for me to increase my emergency funds and hold more cash in the meantime. I have to be the pillar to support my family in my Dad's downtime, and eventually be the one to support my family entirely when he goes into retirement.
- I'm expecting a couple of big ticket expenses in the near futureI'm getting a car.Just kidding, I'm not into those kind of financial suicide :PAfter putting aside the amount for emergency funds, I can finally tap onto my investment cash. However, there is something that I have been working for, and it is still uncertain if I will be able to get that opportunity. I'm actually not confident in this at all, and it wouldn't be a surprise if I fail. However, in case I'm so lucky to be offered the opportunity, I don't want to let the opportunity slip because I couldn't afford it. I will not let this happen again. Even though I have an idea on the range it is going to cost. I don't have the exact figure. Thus I have decided not to make any investment decision until the outcome is confirmed.After which, I will finally start to strategise my investment based on the market.
So that's it from me on why I haven't buy anything from the stock market. This is the first recession I have faced since I reached adulthood. Do you think I'm being overly cautious? Do you think not doing anything in a time like this is not a good move at all? Have you been making any purchase recently? Please share your thoughts with me and many thanks for reading!
Hi
ReplyDeleteI don't understand one thing.
Since you mentioned that the upcoming dip will not be as drastic as before and will probably test the low, then why not buy during the first dip? If you miss the first dip, how can you be so sure that you will catch the second dip this time round? Seems like there's a heavy hindsight to catch the right point when it can be so hard to do.
Agree... there was a studied that staying in the market will produce more gain then trying to time the market,, u may google about this,,
DeleteYea it's true that timing the market is not a good move, but I'd prefer to make my purchase at a price I'm more comfortable with. Given that there's already 21 mill people losing job in the US market, and unemployment rate is still skyrocketing in most other countries, I think it is unrealistic to be optimistic about riding the recent mini bull waves.
DeleteI'm not trying to time the market and catch the second dip, but rather, I'm trying to make my decision when the market is more rational, yet I'm not agreeing with the current market movement. This crisis is supposed to be worse than the Great Recession, the unemployment rate scored higher than then and since this is a viral-induced situation (and the virus is capable of mutation) the recession is deemed to have a slower recovery. Unemployment & Pay cut means no/lower income for household, and in uncertain times like this it drives lesser demand resulting in lesser profit for businesses. It doesn't make sense that the market is going against the macro sentiments when we are still in an early stage of recession.
The government globally is trying to help their businesses and people, and they have to juggle economical benefit and public health. Those businesses who are still in operation (the essential services) are inflating prices of goods to keep up with their operating expenses and trying to make a profit.
In the past recession, we would usually observe a dip, albeit not much, in the price of goods. However, in this recession, we see an inflation in essential services and goods (gosh have you seen how they inflate the prices of eggs and fruits?!), when people are losing their job, forced to take no pay leave or a pay cut). This put the people in to a very awkward situation, where they are effectively poorer because the stuff that they can afford with their money is significantly lesser.
While I don't think that this will lead to another sub prime mortgage crisis, I can't overlook the possibility that many people and businesses may not be able to pay up their loans, even if the policies are encouraging them to borrow money and stimulating the economy
Overall, I'm still quite gloomy about the market and think it will head south, which is why I don't think it's a good idea for me to enter the market. Of course, it is highly possible that I'm wrong. With the advancement of technology and people adapting to a whole new lifestyle, the economy maybe ready for a speedy recovery once the Covid-19 is under control. This is only the first recession I have encountered and I still have a lot to learn, so I have to admit that there is a lot of hesitation in me because I'm nervous and not really sure how I should handle it.