Sunday 10 January 2016

I Don't Know Where The Market Is Heading, But I Should Know Where I Stand

In all my years of experience in the stock market, I never had to deal with a stock market crash in the first week of the trading year. I usually make a tactical bet on the January effect, especially this year as the US Federal Reserve had just made its first interest rate move. This means that I am overexposed to the stock market just as the crash came. The slew of economic news also sent me back to the drawing board to make sense of what is happening and going to happen.

Despite spending an inordinate amount of time on Friday and Saturday trying to figure out what is happening, I still have not reached a conclusion. I almost wanted to stop blogging this week to continue to figure it out. On the other hand, I had a much easier time figuring out the amount of war chest I should keep now and when I should deploy it and by how much. This current state of jittery is both due to the new economic news that I had not considered previously as well as a recent dislocation in my investment plan as I adjust to the loss of a bank's preference share which had served very well in the past as a counter-weight to equities in my investment plan (see Ahead of the Grand Battle for the circumstances leading to the current state of affairs). The conclusion from all these thinking is that there will always be certain things that we could not figure out correctly. When that happens, a good solution is to leave it to the war chest to manage all these uncertainties. After all, the war chest exists because we cannot predict what is going to happen. If we could predict accurately what is going to happen, we would have bought or sold at the right time and do not need to keep a war chest for unexpected events. 

So, really, what I need to do to manage all these market turmoil, economic news and jittery is to admit defeat in the Battle of the 1st Interest Rate Rise, undo the tactical bet and quickly re-establish a new investment plan. In a game where there are 2 players (i.e. you and the market), at least one person must be rational at any one time. If both players are irrational at the same time, the outcome can be unpredictable. The more irrational the market is, the more rational we must become. If I lose money in the stock market, it is usually not because I lost to the market, but because I lost to myself.

Finally, I leave you with a light-hearted view of how the stock market works to relieve the stress: The Stock Market is a Voting Machine.

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  1. Hi Chin Wai,

    The act of "ADMITTING" defeat is already by itself a success formula for future battles. As long as u r not giving up, which I noe u ll not!

    I totally agree that the biggest enemy in any battle is always urself!

    There r many more rounds ahead....

    1. Hi Rolf,

      Yes, it's important to admit that we've made a mistake and return to a position where we can assess the situation more rationally.

      BTW, I read your post on the banks and O&G. You were really accurate! I agree with you on the post, but I haven't got out of Keppel Corp yet, although contingency plans are in place.

      Frankly, I have been following your blog last year and observed that we've taken quite opposite actions -- you selling while I buying. I've come to realised that it's not the actions that matter, but the rationale behind those actions. Everyone has different circumstances, so either buying or selling can be correct, so long as the rationale is correct.

      Yes, see you again in the stock market and blogosphere. I'm learning much from you!

  2. Hi Chin Wai,

    Tks for the compliment, but I seriously do not know yet, bcos the game only just started. U wrote many good posts which I follow and remember also.

    Learning is always mutual. :-)

    Best of 2016.

    1. Hi Rolf,

      Yes, we learn from each other. All the best too!