ACCUMULATING WEALTH – Is the Crash Really Coming? – Part Two


In the previous issue, we discussed the possibilities and causes of the arrival of a bear market. In this issue, let us explore how to deal with it if it comes true.

First, let’s have a look at the current market situation. Just when investors were about to take a breather for the trade truce between US and China, Huawei’s CFO was arrested in Canada (where she is facing extradition to the US), indicating the tussle between US and China is far from over. In apparent retaliation, the Chinese authorities detained two Canadian nationals afterwards. The subsequent development would have investors believe the trade war has now escalated to a 5G or technology war. In Europe, British Prime Minister Theresa May has delayed a parliamentary vote on her deal with EU, knowing she would lose. With little more than 100 days to go, there is still no certainty as to how, or even if, the UK will leave the European Union. On the global front, the anticipated rate hike and 2019’s worldwide economy slow down, and the prolonged low oil price have continued to weigh on the market sentiment.

Technically, the Dow Jones Industrial (DJI) Index has moved in tandem with all the dramas. The second week of December 2018 had seen the DJI test the critical 24000 psychological level the third time. If it breaks below this level, it could trigger another sell down. Locally, the KLCI Composite Index has tested 1660 again. Win or lose, you can see there were more losers outnumber winners lately. It seems like every one is running desperately and if there is any rebound, people will sell. Retail investors are no longer buying on value.
With all the incidents that happened concurrently, it’s not difficult to guess our portfolio would take a beating. Here is our portfolio performance on 14th December 2018:

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 188% since November 2015, but compared to 219% two months ago, it is 14% lower. In times of uncertainty, we decided to trim down our portfolio to preserve more cash.

Sold Ptrans and KGB
We sold 100000 shares of Ptrans at 0.265 and 60000 shares of KGB at 1.11. We also have received dividends from almost all the companies above except Comfort. The total dividends received are RM4740. Adding to the sales’ proceeds from the two companies, the new cash level is now at RM101,485.

What to do in such uncertain times?
If you are wondering what to do with your current holdings on hand, you are not alone. Here are six strategies you may consider executing:
Trim down your portfolio and keep more cash, like what we just did. This is even if the companies you have are still fundamentally sound. So long as your entry price is close to the market price, you may feel comfortable to sell. With more cash on hand, you would have bullets to fire if the market corrects further.
For the rest of the holding, if you buy to invest, do it as a business owner and have holding power. So long as the company fundamentals and prospects remain bright, keep holding it and add more if it goes lower. On the other hand, if you buy to trade, please set a profit target and loss cutting point. If the price has hit either side, sell it.
Do not look at the price too often, as it is merely a record and a reflection of sentiment. In most cases, it has very little to do with the business daily operation.
But if the price fluctuation makes you stressful and affects the quality of your life, sell it. It means either you need more cash on hand, or you do not know the company well enough.
Consider switching some counters to dividend players, for it’s another source of income. If a company can pay regular dividend, it means it has good cash flow. Good cash flow and reserves would help the company weather through any storm.
Be prepared. Have a watch list of the companies you intend to invest. List down your target prices and intended allocated amount. So that when the right price comes, you can take action straight.

Now you would have some ideas on what to do if the crisis comes. Remember: Crisis is a precious moment to profit tremendously if you are prepared. Lastly, wish you a happy and fruitful 2019!