By Ian Tai- My wife and I were waiting for our breakfast in a local Kopitiam in Ipoh. As we did so, I habitually checked Google Finance and found the following:
Source: Google Finance
It was a bloodbath. After quick checks on my portfolio, I was downed by 5-10% on all my stocks. Nothing was spared: banks, REITs, beers, gloves, groceries, Bursa, SGX, US … etc. All were hit globally as panic selling attributing to Truff’s reciprocal tariffs was the theme of the day. These at present are understandable and who knows how long such bloodshed will continue.
So, is this a moment of concern?
Is this a fearful situation?
My guess is – If anyone is fearful, it is because of an intense focus on stock price movements for the short run. It hurts anyone who expects to trade or speculate in the short-term. That person is one who has no intention of holding onto shares in the first place. However, if your sole intention is to own shares of great businesses for a long time, then it makes sense to replicate the style of investing adopted by the Norwegian Sovereign Wealth Fund, which is to embrace volatilities and focus on asset ownership for generations to come.
Such thinking requires deliberate mental training.
This is because without years of mental training, many will react to their default nature and that’s to be short-term price-focused. The idea of long-term thinking is definitely not well-received now, if your mind is horrified with the 5%, 10% and possibly 15% drop in stock prices in a single day.
After all, our emotion is a powerful driving force that could influence our investing decisions.
Thus, in this write-up, I’ll keep it simple. I’ll make a list of 5 pointers that all of us may consider to navigate our stock portfolios through this bloodbath. If you thrive from this, it could enhance your confidence as an investor and you gain experience on dealing with your emotions during market crashes like this. The 5 pointers are as follows:
1. “Accumulation” over trading
There is a difference between a trader’s mindset and an investor’s mindset.
A trader has no intent of long-term stock ownership. The aim is to profit from differences in stock prices in the short-term. Falling stock prices can be interpreted as “wealth lost” and thus, viewed negatively.
An investor is different as the aim is to amass income-productive assets over time. The question is not – “If I buy A Inc at $X, could I sell it for 20%, 50% or 100% higher than $X”. Rather, the key objective is to own 10,000, 100,000 or 1 million or more shares of A Inc if the stock’s businesses are highly profitable.
For instance, if we set a goal to accumulate 10,000 A Inc’s shares for the next ten years, won’t it be rational to accumulate more of its shares at undervalued prices? Hence, times like this would be good news to investors as it offers ample opportunities to invest in fundamentally solid stocks at discounted prices. Instead of fear and despair, it is a time to revisit our shopping list to identify deals in the market.
2. “Preparedness” over prediction
Do note: Falling stock prices don’t necessarily mean all stocks are investable.
Investors are careful with their stock selections.
In the near-term, there will be “predictions” from pundits, gurus, fortune tellers and prophets who have a variety of opinions on what will happen to which stocks, markets, economies and nations in response to Trump’s reciprocal tariffs. We’ll find them plentiful across social media platforms.
Personally, I’m not into prediction.
I’m less concerned about “what could, what might, and what would” happen next.
Rather, I believe it makes sense to focus on companies that are “prepared” to navigate this tariff. Such “preparedness” is measured based on their balance sheet strength. In challenging times, it is helpful for stocks to have ample liquidity and low gearing that could survive in this tough times and have extras to invest for growth. The more financially prepared these stocks are, the better I believe they would handle this crisis and even thrive from it.
3. “Moderation” in Investing
As discussed, there is no telling of when the markets will “bottom” and when they will recover for we are not into predictions.
It is a futile effort to try to figure out the exact bottom of stocks that you desire to invest in.
It may not be sensible to go “all-in” into acquiring your preferred stocks at a single time.
Instead, all of us can exercise moderation in investing via value cost averaging (VCA). We could always stagger our investments in phases over time. For instance, the price of a stock has fallen to $10 and we have $100,000 to invest. There is no need to invest the entire sum of $100,000 to buy 10,000 shares at a single time.
Rather, if let’s say we find the stock to be valued at $12. We could invest $10,000 to accumulate 1,000 shares at $10 for a start. If the stock fell to $9 a share, we could invest another $10,000 to accumulate more and so on and so forth. Such would help us minimise any regrets if the stock’s price continues to fall after we made our first few purchases.
4. Prioritise on “Prime Assets”
Let’s say there are two stocks that I desire to invest in: A Inc and B Inc.
A Inc is fundamentally more beautiful and higher priced than B Inc. Now, in a situation like this, it is perhaps a chance to focus on A Inc as the assets are primer and a drop in its stock price may just make its shares more affordable. Hence, A Inc would be prioritised first. Of course, once the markets recover, we can always accumulate B Inc as an appetizer.
5. “Volatility is …”
Short-term volatility is to be expected and pretty normal.
Many people view volatility as a foe, a risk. It is the argument that stocks are risky investments. I believe such thinking is a hurdle to successful investing.
On the other hand, investors embrace volatility. It is a friend that builds wealth. Though it sounds oxymoron, market crashes present chances for investors to acquire fundamentally strong stocks at bargains. In a way, it is how wealthy investors become richer over time. Hence, if you feel that short-term price volatility, market crashes like what happened this morning is scary, frightening & something to be shunned, that is okay if you are a beginner but you need to adopt a different set of views on it if you want to invest successfully over the long-term.
Conclusion:
The above market crash is frightening to people who are not skilled in investing. This is because people that are unskilled are ones who focus on stock prices. They do not have a vision to look / see beyond stock prices.
Investors are ones who have three skills: accounting, valuation and portfolio management skills.
Accounting skills allow them to find fundamentally solid stocks.
Valuation skills allow them to find real bargains from a pile of stocks that crashed this morning.
Portfolio management skills allow them to build an A-Team of stocks that grow their wealth. Plus point, it involves managing emotions to navigate through market crashes like today.
With them, we can navigate through this crash by focusing on accumulation, preparedness, and moderation in investing in prime assets on a staggered basis with VCA.
Ian Tai is a Financial Content Machine. Dividend Investor. Produced 500+ Financial Articles featured in KCLau.com in Malaysia and the Fifth Person, Value Invest Asia, and Small Cap Asia in Singapore.
