ACCUMULATING WEALTH – Embracing the Bear Market

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Lately, many retail investors felt anxious because of the depressed stock market. Therefore, in this issue, I’m going to discuss how to look at the bear market from a different perspective. But before that, let’s discuss the global economy first.

In December 2018, the US job growth hit 312,000, while the unemployment rate rose to 3.9%, and wages jumped 3.2 % from a year ago. Apparently, the US economy has been doing well. Technically, the Dow Jones Industrial (DJI) Average has rebound sharply from 21713 to 23996 at the time of writing. Whether it can break above 24000, it would depend a lot in China. So how is China’s economy? In early January, Apple cut revenue forecast on weak China sales, hammered Asian suppliers and triggered a broader selloff in global markets. On 14th January 2019, China’s top auto industry association said its auto market has contracted the first time in two decades. On the same day, China’s export and import figures has showed they are much worse than expected in December 2018, underscoring the rapid weakening of the Chinese economy. And we have not discussed China’s highly increasing debt level.

Not all is bad though. Firstly, oil price has rebound from a recent low of USD42.5 to USD51 per barrel in January this year. Secondly, the market perceives the two giants’ trade talk to go well, and expects more negotiations to continue. Thirdly, the rate hike seems to have paused as the US Fed chairperson hinted the rate hike would be ‘more flexible’.

With all the ongoing changes of macro condition, would it be necessary to make adjustment to our investment? Here is our portfolio performance on 14th January 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 has showed a gain of 175% since November 2015. As you can see, we have sold two companies to preserve more cash, while added one REIT for its stable earnings that comes with attractive dividends.

Sold COMFORT and HEVEA
We sold 80,000 shares of Comfort at 0.85 and 120,000 shares Hevea at 0.63. Both investments incurred losses of RM8000 and RM21600, respectively. The reason of selling Comfort is that we noticed the share price of the entire glove sector is facing downward pressure. For Hevea, it’s believed that the slowdown of China’s economy would have an impact on its particle board business.

Added KIP REIT
KIP Real Estate Investment Trust (KIP REIT)’s income generating portfolio consists of 5 KiP Marts, which are a cross between traditional fresh market and retail outlets. It has a strong presence in Johor with three of the marts strategically located in Tampoi, Masai and Kota Tinggi.

With KIP REIT’s attractive dividend, business resilience, earning stability and low valuation, we bought 80,000 shares of KIPTREIT at 0.78. It is a defensive strategy in times of uncertainty. With the above transactions plus the cash brought forward, our new cash level is now at RM182,685.

Embracing the Bear Market

  1. Seeing the bear market with the right mindset is important. It would help you mentally prepare and be able to profit from it. There are four ways of looking at it:
  2. Understand the stock market is a cycle. It will eventually be going higher because of global inflation and rising population. Would you feel different knowing that the bear market is only a temporary correction? I bet you would.
  3. If you are happy to shop during Raya or Christmas sales, why are you not happy to shop public listed company sales? It boils down two reasons: First, you don’t know there are many good companies around. Second, you are short of cash to buy. Whichever the reason may be, you can work on it. Start learning about the company you want to invest and prepare some cash, now!
  4. Be mentally prepared that the bear market would last for another one to two years. In the US stock market history, bear market only lasts for one to two years. Once the bull returns, it can easily last for nine to ten years, and the index can go up as much as 500% on average.
  5. You can still make money via trading during the bear market, as volatility means opportunity. So go and learn the skill.

Conclusion
Bear market is not necessarily bad as long as you got the right perspectives. Once you have learned the right mindset, you can still dance in the rain!