Tag Archives: Hang Sheng

Being rational in the crowd of madness

Today, the STI ended up at 3567.14 or about 240 points (or about 6-7%) short of the all-time high made by the STI in 2007. By now, it appeared more and more people are thinking that a crash is around the corner. Isn’t this the same old story that started as early as 2011 in the midst of the Euro crisis when it was widely expected that Greece would likely be the 1st country in the Eurozone to default? That was already about 5-6 years ago. Every year pockets of people would shout of an imminent crash. More recently, when the STI passed 3600, it appeared that many more are clamouring that a crash is around the corner. But then, what happened to the real stock market in all these years? Dow Jones Industrial Index (DJII) broke its all-time at least 40 times since the global financial crisis. The NASDAQ punched through the 7,000 mark. Hang Sheng pierced through its all-time high several times, Nikkei 225 perhaps at 20-year high. And our STI, though miserable, still managed to climb pass 3600, second only to the peak made in year 2007. Naturally, when the market is on an uptrend, it must peak sometime in the future, but it may not necessarily end up in a deadly crash immediately thereafter. It can a be long-drawn side-way movement or, perhaps, a gradual decline. The question is when would be the peak and how it is going to happen beyond that? It may happen in 6 months’ time or 2 years down the road and the side-way movement can last for another 2-3 years. After that it can continue to climb or maybe decline. There are just infinitesimal ways that it can happen. So, why anticipate a crash when it may or may not happen somewhere in the near future? In fact, by haunting ourselves that a crash is near, we may risk ourselves into holding too much cash making us look stupid when the market is in a bull run. It may be alright to hold cash for one, two or even three years, but beyond that would be a big drag on our overall portfolio performance. Investing is like doing a business. We do not get into a business when the time is good and then get out of it when it is bad. If there is really a crash, we just have to face it, and steer through it and learn from it. We always read on the news that billionaires whose wealth got decimated 30%-40% during a market crash. But that was only a point in the time-line. With their steady hands, their business actually improved to a next level when the crisis was over. Only businesses that did not sit on strong fundamentals and poorly managed would end up collapsing like a pack of cards during a crisis.

Suppose we have $100k and we engage a fund manager to help us invest. After a few months, when we found out that the fund manager had put 50% in stocks and another 50% in cash. When asked, the fund manager replied that he stayed 50% cash was because he anticipated a crash somewhere in the near future. What is likely our next course of action? We probably pull out the fund, isn’t it? Why would we want to engage the service of a fund manager when he is only 50% engaged?   Isn’t it the same question that we need to ask ourselves if we are managing our own funds when we are only 50% engaged. Think about it. Even if our stocks were to advance 30% for that year, the other 50% that stayed as cash would yield at most 1% return from bank interest.  That puts us a weighted average of 15.5%, which was below the STI ‘s advance of 18% last year, which was considered as a very good year.

So much has said about holding too much cash. As a matter of fact, I also do not advocate holding only 6 months average monthly expenses as an emergency fund either. Without some cash at our disposal, it would be difficult for us to make opportunistic purchases that may pop up from time to time. So, end of the day, it boils down to a few basic questions of personal finance. What is our risk tolerance level and our comfortable percentage in holding stocks?

Historically, with dividends thrown in, stocks are a good hedge against inflation.  Personally, I would estimate the historical inflation rate to compound around 2% annually, apart from some seismic shocks that happened once in a while. That should be matched by about 2% in dividend growth rate in blue chip stocks, even though it may not necessarily advance in lock-steps with the inflation rate. So, it means that if we purchase a stock and never ever sell it off, we should, in essence, not be worse off.  Of course, this is not the motivation for buying stocks. With a bit of stock price volatility but, generally, with an upward trend in the long run, it is highly probable that we can make some money along the way. In a nutshell, stocks should be considered as an avenue to provide a reasonable rate of return in the long run. Based on this very basic fact, we really do not need to be an A-grader in school to make money from stocks. What is more important are traits like discipline, able to acquire some skills on valuation techniques, perhaps pick up a few basic money management skills and get some understanding of the market mechanism. That’s all it needs to gain from stocks in the long run.

Brennen has been investing in the stock market for 28 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is the instructor for two online courses on InvestingNote – Value Investing: The Essential Guide and Value Investing: The Ultimate Guide. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.

Any time is a good time to invest

We often heard colleagues or friends mentioning that they were right now on the sideline waiting to pounce aggressively into the stock market when the stock market crashed. It was as though they were seeking a revenge that the stock market owed to them for the past 18 years. There were also individuals trying to study the leading signs of past crashes as they were trying to draw parallels from the past crashes in hope to find a coming one for them to punt on. Then there was also another group trying to discourage the others from investing, quoting the reason that most of the major markets are trading at around their all-time high. Over the past few years, it was also quite common to come across people who mentioned in social media that they would get into the stock market only when the STI hit a low of 1,800 points. If all these people have been staying out of the market due to their respective reasons, they probably have missed out big time.

An article featured on the Sunday Time last week entitled “The time to invest is now.” As I read through article, I must say I agree with the writer 110%. The article revealed that a famous investor said the market was going to crash within a year in the midst of European crisis in 2011. Should we have followed that call and stay in cash, we would have lost plenty of opportunities hiccupped by stock markets from time to time in this relatively long rally from then till now.

One noteworthy point in the article is the following

a.       If $100k were to stay in cash since 2011 till now, the return would have earned $300.38.

b.      If the $100k were to invest in ST index, the return would have been $46,243.36.

c.       If the same $100k were to invest in MSCI All-Country World Index, it would have made a return of $111,869.96 or a return of more than 110%.


Speaking from my own experience, we often thought that the timing was not right to invest, but after a few months, we regretted for not investing because stocks that we were interested in simply got higher. I cannot agree more with the writer that stock investing is not a binary decision, that is, to be totally in the market or to be totally out of the market, and not somewhere in between.  But essentially, in stock investing, it should be somewhere in between. Periodically, we should put some percentage into stocks while another portion to remain as cash depending on our comfort level. It is this periodic allocation that probably wins the race even if one is just a medium performer in stock picks. The cash portion, by itself, is a good cushion against any crashes or significant meltdown that can occur from time to time.


People who are serious about in stock investing would agree with me that it is like managing a business. And like in a business, we simply do not get into it because the time is good and out of it when time is bad. Most of the time, we have to steer the business as it moves through the good and bad times. In the past twenty years, we witnessed at least two major stock crises that saw the STI tanked 60%. Apart from these major crises were numerous smaller ones that had depressed the STI of somewhat between 15% and 30%. If we look back in history, the time period between all these crises was not that long, at most 3-4 years in between. Each time when it occurred, we do not know the real bottom until it had passed us convincingly. Only then, we start to regret in hindsight. 

A very good example was the marine and offshore industry. Just 18 months ago, we saw everywhere is bad news and the two major oil rig producer SembCorp Marine and Keppel Corp were hitting their lows. But by today, the share price of the two stocks has already past their lows. For those companies whose stocks have been either suspended or still struggling to get out of the problem that plaque the industry, it is because they had over-stretched themselves during the good times.


To date, the Dow hit its all-time high in 30 of the 54 months since the global financial crisis. Within a year since Donald Trump was inaugurated as the president of US on 8 November 2016, the Dow advanced more than 5,000 points to 23,400.86 as of market close on 26 October 2017. Whether we are trading via HKSE, Nikkei 225, any European markets or the STI, we are either at the respective all-time high or near to it. Perhaps, I may have selected a wrong time to write about this because all these markets are at their all time high, and may be in for a huge fall in the near term. However my personal experience in my investing journey showed that cashing out can sometimes be worse than simply stay on course. My ill-timed sell-out and inability to carry out a re-purchase program during the Asian financial crisis was a costly mistake that I wish to forget. In the other 4-5 crises into the new millennium, it seemed that I had done better. True, when a crisis was in the midst of gyration there was a lot of fear, but it seemed that things got better than it originally started when things were over. So, actually anytime is a good time to start our stock investing journey.


Brennen has been investing in the stock market for 28 years. He trains occasionally and is a managing partner for BP Wealth Learning Centre. He is also the author of the book – “Building Wealth Together Through Stocks” which is available in both soft and hardcopy.