ACCUMULATING WEALTH – From Bear to Bull – what are the lessons?

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If you have been in the market lately, you would have felt the market sentiment has turned much positive as we ushered into the 2019, making it a fast shift. But what can we learn from the fast change?

First, let us have a look around the global stock markets. The most bullish market now is the US, which the three main indexes have rebounded sharply and stood at above moving average 200 (MA200) at the time of writing. Apparently, this is in harmony with its strong economy. In Europe, the DAX, FTSE100, CAC40 indexes have recovered to above moving average 50 (MA50), implying the bulls are returning. Likewise in Asia – China, Hong Kong, Singapore, Indonesia, Korea and Australia stock market indexes have bottomed up and stood above the MA50, too. Malaysia Composite Index, FBMKLCI, is on its way of returning to psychological level of 1700. The recovery is attributable to a few factors, such as the US Reserve Bank’s pause move on interest rate hike, more optimism on trade talks between US and China, stabilised oil price and good earnings, to name a few.

With the positive change of market ambience, is it a good time to buy? Here is our portfolio performance on 14th February 2019:

Disclaimer:
The companies or strategies mentioned in this article are meant for study purpose only. It doesn’t constitute any ‘buy’ or ‘sell’ recommendation. Please consult your financial professional if you want to make any decision.

The portfolio above has showed a gain of 202% since November 2015. As you can see, the swift change of the sentiment has increased our gain from 175% to 202% in merely a month. We added one company since the sentiment has turned more positive.

Bought KGB (0151)
KGB is a one-stop facility solution provider of turnkey engineering services. It was in our portfolio a few months ago but we sold it to preserve more cash. Lately, KGB announced its maiden contract win of RM93 million. The contract was awarded by one of the world’s largest gas companies, indicating KGB’s reputable accomplishment in Ultra High Purity (UHP) player.

In addition, KGB is a beneficiary of the trade war between US and China. It supplies UHP to China semiconductor industry, which is in booming stage. Furthermore, KGB’s foray into the industrial gas market has augur well for its long-term growth prospect.
With the above consideration, we bought 60000 shares of KGB at 1.16, amounting to an investment of RM69600. With cash brought forward plus dividends of RM1240 received from KIPREIT, our new cash level is now at RM114,325.

From Bear to Bull, what are the lessons?
Even though the market has gone up for the last two months, many retail investors still lack direction and do not know what to do, as the change is rather quick. Nonetheless, there are three lessons we can learn from this phenomenon:

  • Knowing that the stock market is a place of change
    News can cause the market to have a knee jerk reaction. It is always overreacting, whether it’s going up or down. So when the market is in ecstasy, don’t be too greedy and in bad times, don’t feel sad or fearful, but be sober instead. Most of the time, company businesses’ remain as usual even when their share prices fluctuate.
  • Accept the fact, whether it is bear or bull
    If the global stock market indexes have gone above the MA200 and MA50 line, chances are, we are in the bull market. And don’t forget, your trend is your friend. So take advantage of it. Do calculate risk to manage fear.
  • Follow through is the key
    Imagine this: this was the beginning of October last year, and you realised the market sentiment was negative; hence you sold all your shares and didn’t look at it. And now, the bull has come back, will you be able to take appropriate actions? It is unlikely, as you don’t know what has been happening. So, the key is not only to observe the market, but stay invested in the volatility, whether it’s investing or trading.

Conclusion
In the stock market, every new experience is a lesson learned. It is ok if we didn’t earn as desired, but we must have learned to progress.