Investors had a rude shock on Tuesday morning when they found out that Dow Jones fell a whopping 1075.21 points the night before. That followed by an after-shock tremor of another 1032.89 on Thursday, 8 Feb 2018. In total, the Dow Jones fell 1330.06 points for the week. This was the second week of fall since the peak at close of 26616.71 made on the 26 January 2018. To date, Dow Jones fell about 10% from its peak. As the saying goes when the Dow Jones sneezes, we catch a chill. For the week that passed, the STI fell about 6.5% to end at 3377.24. Although the STI volatility is much smaller, it is good enough to drive people crazy rushing in and out of the exit door. By now, we know that the recent peak of 3,600 has already passed us and we may not reach it back again so soon. As shown in reality, we do not know when the peak really is until it passed us in real time.
Out of my normal self, I was forced to react making buy and sell decisions in double quick-time to avoid being swept down by the avalanche and failing to pick up good stocks at discounts. This was happening as I was in the midst of scaling down some property stocks holdings after all the euphoria about en-bloc sales in the past few months. This will help get rid of some lousy stocks and enhance my liquidity in preparation for the next interest rate cycle. During times of distress, all stocks, whether good or bad, are all in a mixed bag, moving up and down with the market swings. Actually, such times are the real tests that separate excellent fund managers from the good ones, and the good ones from the lousy ones. As we all know, in an upmarket, everyone is an expert, but we only know who is really swimming naked when the tide recedes.
Extreme volatilities are also trying times when no classroom analyses are able to capture. It is just the human nature of greed and fear that swing stock prices up and down in real time. Even though I am a great believer of stocks’ underlying fundamentals, there are really more to just doing analyses to find out stock PE, BV or intrinsic value. To me, knowing some classroom fundamental analyses probably help us in the first 50% of winning the battle, we really need to understand how the market works as well as some understanding human & market behaviour. (That was why I decided to launch two courses instead of only one in the investing.com platform – Value Investing: The Essential Guide and Value Investing: The Ultimate Guide. The former being more a classroom analyses and the latter one being practical aspects of investing. To me, these two parts have to come hand-in-hand to be more complete as a successful investor.) But again that does not mean that fundamentals or any analyses are of no value and can be thrown out of the window. On the contrary, I think understanding FA is extremely important. It helps capture the first 50% of the battle. It is usually during these trying times that we get to experience their importance. Stocks with good fundamentals usually fall together with the rest of the stocks during a market collapse but will get to be picked up first when we sense that the market is returning to calmness. And once the market is in the state of steadiness, these stocks leap further up ahead of the others. To me, value investing is still the most important subject to take away the stress off the crazy market place.
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.