Looking at past 10 previous Dow outcomes when Dow experienced a correction in the early months of the year, it is usually followed by another correction months thereafter within the same year. If such trends were to repeat itself, we could possibly see another Dow correction as early as April-July 2018 timeframe or September-November 2018. In the interim until we see that correction, the market IMO will be choppy and volatile and as a result we could see a lacklustre and subdued market sentiment across the board especially in the speculative space.
Given that, I believe the “Buy and Hold” strategy is over with exception of proven growth stocks that can continue to beat market expectations. The Buy and Hold strategy will not be as effective during a bearish trend because the market will not be kind to companies that either has only minimal revenues and/or have large losses or cash flow negative – the same accommodation that the market provided during the exuberant days of mid to end 2017 will no longer be there because the bear would have taken over control (buyers have no forward reason to push up prices). Any short term upside experienced will be met with selling (into strength) resistance. Recognising this is a way to limit losses and/or preserve gains made earlier.
It is always easier to buy than to sell. And do you know why? Because selling is like betraying your personal conviction about the stock you bought, let alone selling for a loss (“I didn’t buy to lose”. But reality is that a lot of the more speculative stocks that we buy believing the story or have conviction are not really what we thought they are (actually we don’t need to cite GSW and BIG although they are recent examples, if you look back in history, the ASX has been littered with quite a number of them in the past). Perhaps only 5-10% of stocks become the multi-baggers (only reason to stay long) that prosper to be a dominant business in their own field of specialities. The obvious dilemma now is that selling after a stock has just experienced a 40-50% fall in the speculative tech space seems rather ridiculous and that if we were to sell, we should have done so much earlier. People can look into the Rent.com case study I posted earlier (see in thread) and make their own judgment. Maybe better late than never? Personally I don’t buy the wisdom that you have not lost money until you sell i.e if you are having paper losses, it’s not a loss. While that is true, in a lot of cases especially in the speculative end, you could be on false hope. If the stock could not generate revenues to have the hope of eventually making money after a period of time, it is more likely it could never get there and when everyone realises it, it would be trading at a small fraction of what it used to worth when everyone had the belief. Flip it another way, you can also say that until and unless you sell, you have not made any gain or gain you have on paper but no one seems to say it. But ask the holders of GSW who bought at 50c and held till $4.60 and did not sell and now left with 55c. Bottom line : the ledger remains open until the sale is effected (and this is what I meant by ‘doing nothing is doing something’.
I also believe post the mid to late 2018 correction (if this does not turn into something uglier), a substantially more adverse market environment awaits us within 2019-2020. A higher cash allocation in portfolio would enable investors to capitalise on the market malaise that lies ahead.
Take care!
In March, I cautioned about Facebook with a great article by Plunger . You can see that FB is now at $131 sitting around the support zone. The signs were already there earlier in March as you can see the down trend amidst regulatory risks FB faced following the data scandal.
And this I wrote from my personal experience , reproduced here for the 3rd time.
For me, Short term investing can be 1 week to a year depending on how the stock performs, behaves, level of interest and underpinning fundamentals as well as prognosis on the external market environment. It means selecting your stocks carefully in well-timed manner as best possible and remaining nimble.
Active investing requires constant assessment of all those above-mentioned variables and have a keen eye on opportunities as well as looking out for risk factors and staying open minded.
For me, it is important
To recognise my mistake early on and take appropriate action (be it a sell or a buy) and never be in denial (if on the face of probability, I have been wrong)
To recognise that in one’s portfolio, there’s always Win and Losses and while most people would be quick to sell their wins early (rather than let them run) and hold on to their ‘dogs’ for clinging on to hope that they would somehow spring back, I’d prefer to cut my losses quick to minimise the damage and ride the good horse until it gets worn out. And it’s the overall position that counts
To never put all eggs in one basket i.e the virtue of diversification , the theory which we all know but commonly fail to adhere to or practise
To never fall in love with any stock – market darling one day could turn out to be a dog the next. Should always consider using stop losses
To be decisive and not procrastinate, as opportunities wait for no man (or woman) (this include opportunity to sell as with opportunity to buy)
To always be ahead of the curve in understanding the wider investing landscape, the risks ahead and having the preparedness to take protection when the situation calls for
To recognise that a paper WIN is just that, without realisation it can just as well disappear. And to recognise that a large paper LOSS can and should be avoided as normally they get bigger (when everybody recognises your stock to be a dog, no one will pay to buy it) and both involves opportunity cost.
To know a speculative buy from an investment and not to treat the former as the latter, while treating the latter as the former is ok (and consistent with short term investing)
To understand at all times where your stock sits in terms of Over or Undervaluation vis-à-vis its peers or on well-established financial metrics
To not make stock buying/selling decisions purely on tax considerations
To have an open mind and listen to arguments for and against any choice of investing/speculative stock
To read widely to gain the requisite knowledge to make better informed decisions.
To remember Buffet’s 1st rule of investing- to never lose money and the 2nd rule which is to never forget the first rule
The above are just sharing my thoughts re: my investing experience and is not to be construed as extending investment advice. My experience may not be similar to other’s personal circumstances and as such should be read in that light.
. But reality is that a lot of the more speculative stocks that we buy believing the story or have conviction are not really what we thought they are (actually we don’t need to cite GSW and BIG although they are recent examples, if you look back in history, the ASX has been littered with quite a number of them in the past). Perhaps only 5-10% of stocks become the multi-baggers (only reason to stay long) that prosper to be a dominant business in their own field of specialities. The obvious dilemma now is that selling after a stock has just experienced a 40-50% fall in the speculative tech space seems rather ridiculous and that if we were to sell, we should have done so much earlier. People can look into the Rent.com case study I posted earlier (see in thread) and make their own judgment. Maybe better late than never? Personally I don’t buy the wisdom that you have not lost money until you sell i.e if you are having paper losses, it’s not a loss. While that is true, in a lot of cases especially in the speculative end, you could be on false hope. If the stock could not generate revenues to have the hope of eventually making money after a period of time, it is more likely it could never get there and when everyone realises it, it would be trading at a small fraction of what it used to worth when everyone had the belief. Flip it another way, you can also say that until and unless you sell, you have not made any gain or gain you have on paper but no one seems to say it. But ask the holders of GSW who bought at 50c and held till $4.60 and did not sell and now left with 55c. Bottom line : the ledger remains open until the sale is effected (and this is what I meant by ‘doing nothing is doing something’
