Is Stock Market Correction Normal ?



Since the start of 2018, the stock market has experienced higher levels of volatility than we’ve seen before. The result has been in many headlines or news highlighting the downfall of a strong market and how much the market cap has been wiped out in such short period of time. It’s left many people wondering if this is normal and healthy, or a sign of worse things to come ?

For me , it is normal for the markets to experience a short-term decrease in prices, typically followed by a long-term advance. Those are the facts.

The complexity of available financial products is contributing to this unusual volatility. In recent years , financial services industry innovates by creating new and complex products such as Options/ Future / CFD / DLC that track everything from market volatility to price speculative. These leverage products / derivatives  give “investors or gambler “ entirely new ways to “trade or gamble” on the market. I am sure market will tend to be more volatile due to these “trading “ products and avenue. As such  we will need to understand the “market correction “ and volatility to avoid excess trading or end up selling due to panic / emotion.


Two very good articles / advice from The Mootly Fool :

A stock market drop doesn't mean it's time to panic. Here are six things you should be aware of when it comes to stock market corrections.

Warren Buffett's Playbook for a Stock Market Correction

Worried about the stock market's volatile drop? The Oracle of Omaha's wisdom can guide you through it


From below chart , you can see that market has experienced or gone through many crisis since 1985 ( 33 years ) , 9 crisis level of corrections with more than -20% and many more less than -20% kind of correction. Investing during crisis will really make much different on your overall ROI as compare to your peers or other investors , as mentioned before , I am really “lucky” that I could take advantage and invest more during GFC in 2008/09 that improved my ROI tremendously.






One should not fear about crisis , in fact should love it and invest more during crisis. Here I am not talking about 10-20% kind of market correction , you don’t sell  all your stocks if market having correction of -10% , of course you may try to nimble a bit but keep most of you war-chest intact for major crisis.


Even during the last 2 crisis after GLF (ie European Debt Crisis (2011) & Emerging market and O&G (2015) , I deployed some of my war-chest but not all.

For recent market correction of around 10% , I didn’t do much on my portfolio except some minor adjustment of composition with some in and out on certain sectors or stocks. I am still counting on the dividend I receive quarterly, which is much needed to cater my monthly expenses. In might be too extreme to go all out or in due to such small correction , unless you are a “traders “ who try to take advantage of “market volatility or swing “.

Nobody really know what will happen to market from now onward , it may continue to drop by another 10-20 % as market volatility due to trade war which still persist and entangle, but remember that Volatility not equal to Risk.



Last year was a really good year for most of investors ( including me ) with double digit return , but we must be realistic that : 人无千日好花无百日

As of writing , STI’s return was 0.2% since Jan 2018 and I am performing worse that that with -0.4% due to more investment in REITs in my portfolio.  REITs will continue to form major part of my portfolio as I need the “stable and more predictable” income to meet my monthly expenses. My target of adjusting REITs to 50% of my total portfolio almost done and I look forward to accumulate more growth / value stocks in next crisis.

1St Quarter 2018 will end soon and I am looking forward to the announcement of financial result from companies I vested and of course the expected :Dividend to be collected . Stay tuned for my next update.



Cheers !


## Related Link : 






"Stock market goes up or down, and you can't adjust your portfolio based on the whims of the market, so you have to have a strategy in a position and stay true to that strategy and not pay attention to noise that could surround any particular investment." John Paulson

Comments

  1. do you see a need to get global exposure or can one make do with the local stock market in a crisis/correction?

    ReplyDelete
    Replies
    1. Hi Steven, yes. there always be merits of getting global exposure or diversification , but also we will have other risk eg. currency , tax . Also, once we have financial crisis which affect economy like the one in 2008/09, no country will spare from such market turmoil , global exposure may have less effective in such situation , picking right and fundamental strong stocks which we understand better will be key ..
      Cheers !!

      Delete
  2. Hi STE,

    As usual, I enjoy looking forward to your post and reading them. I believe that a correction is normal. Sadly to say, 2017 is a no good year for me despite the greenish market. I have much more to learn!! Must learn to hold my itchy fingers from nibbling too much and concentrate to build a more sizable war chest!

    Regarding the your older post about DJIA falling 1000 points - that is correct. However, DJIA is priced at 23k today as compared to 2722 points in the peak of Black Monday. This in relation will mean that the drop is 5% rather than 36%.

    The drop of 1000 points has evolved from a crash to a correction haha! How impressive is our market!

    ReplyDelete
    Replies
    1. Hi sleepydevil,
      Thanks for the commenst , yes , having a war-chest ready is rather important , especially when US or develop markets are in peak now with "rich " valuation , also , you are right in pointing out that 1000 points in today's term is very much different as compare to 10 years ago.. remember I ever quote about the book " "Lies, damned lies, and statistics" , our news are full of skew statistics ,, like using average or the example u have just highlighted ,,, analysts try to compare how fast or how many days DJ increase by 1000 points in theses days , but is distorted if we compare it in term of %... u are absolutely right !! :)
      Cheers !!

      Delete
  3. Hi STE

    Good advice coming from veteran investors like yourself.

    Im surprised you are slightly negative this year though thought the oil and gas are outperforming quite well for you.

    ReplyDelete
    Replies
    1. Hi B,
      Thanks for the comments, yes, my Banking and O&G counters are giving me +ve return but it has been dragged down by REITs and Telcos which form major part of my portfolio..hope at the end of the year , these sectors ( including ComfortDelGro )may recover and I may see +ve ROI .. :)
      Cheers !!

      Delete
  4. Hello STE,

    Thanks for sharing your experience in the market to noobies like me :p
    Indeed, the media tends to over-exaggerate stuff like falling by xxxx points but if we look at it in percentages it isnt quite alot.
    Still have to learn to keep my fingers strapped and not invest fully at minor corrections!

    Cheers,
    Cupcake

    ReplyDelete
    Replies
    1. Hi CupcakedCrusader,
      Yes, we shouldn't be too " excited " or over-react about "market news" , those trying attract readers with " exaggerated " news headline... Yup.. keeping some war-chest "ready" is always good to take advantage on "market irrationality ".. :)
      Cheers !!

      Delete
  5. Thanks very much. Always look forward to updates as well as posts from you. Although drops in the range of 5-10% are different from drops over 10%, still they offer opportunities. Provided you exercise strict discipline and set target proves as well as portion sizes that you plan to nibble, it will work to our advantage. I am trying to prepare an algorithm in such a way that my portion sizes will increase progressively with larger corrections beyond say 10%. To an extent, this will ensure that our war chest does not exhausted "prematurely". Of course, predicting the market trend thereafter is impossible.

    ReplyDelete
    Replies
    1. Hi garudadri,
      Thanks for the comments and sharing of your " strategies " on position sizing and how to use your war chest in a very " discipline " manner ... very impress with your "algorithm " method of portfolio management in determine the size of each counter in your portfolio...👍

      Cheers ! :D

      Delete
  6. I would love to see more volatility as I'm a net buyer.

    Just stay calm, stick to your long term plan and have your buy list ready.

    ReplyDelete
    Replies
    1. Hi Passive Income Guy,
      Thanks for dropping by , yes , one need to have patient and long term view when facing such volatile market , we always need to remember that volatility doesn't equal to RISK , so long as we know and understand what we are investing... buying during crisis or crash will always get the best reward...
      Cheers !! :D

      Delete

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