It’s been more than a week since Mr and Mrs Budget wrote something here.
To be honest, we want to write more but have been running out of topic to write. So if there is anything you’d like us to share more about, please feel free to drop them in the comments below. We love hearing from our readers.
So today we wanted to share an observation that we made over the past few days.
It seems as though market has reentered the bull market again, where it has gained 20% since the low just 3 weeks ago. Every other day market seems to be rallying. Stock prices continued to charge upwards as if nothing happens.
This has definitely triggered a lot of FOMO feeling amongst investors, Mr and Mrs Budget included.
To overcome the FOMO in us, we have to resort to discussing and reassuring to each other than this cannot be a V share recovery. And it seems as though this is more of a very irrational investing behavior as opposed to keeping up with what is happening on the grounds.
COVID-19 No Signs Of Slow Down Yet
First of all, there is still no signs of a successful development of a vaccine towards the covid 19 virus.
Everyday there are more new cases globally and the graph is still an upward sloping graph. While the daily new cases globally seems to be tapering off, but I think there are still under reported cases globally.
If consumer confidence are not restored, how can share price increase to pre covid 19 pricing?
Weak Business Fundamentals Not Announced Yet
COVID outbreak and the lack of vaccine aside, business fundamentals are still giving out waves and waves of bad news. AGMs of companies are pushed back, and companies like Lendlease are announcing revisions to their projected dividend.
Other than that, what we have heard from F&B owners is that traffic and business has plunged by more 80% during this circuit breaker period where everyone is required to stay at home. Streets are all quiet and people are not spending any money at all.
With companies increasingly going out of business, this means unemployment will increase as a result of that.
All the signs on the ground are pointing to negative signs – how can this be a V shape recovery? PM Lee also mentioned that this will not be a V or U shape recovery.
“It is going to last quite a long time: it is not a V-shaped down dip, it is not a U-shaped dip.” – Lee Hsien Loong
Bad Economic Projection Globally
If you have been following the news, there are certain big headlines recently that should warrant some worries from the financial market, but yet the market is rallying every other day.
According to International Monetary Fund chief Kristalina Georgieva, the outlook for global growth was negative and the IMF now expected “a recession at least as bad as during the global financial crisis or worse.” This was back 3 weeks ago.
Let’s take a look at the chart above – if you look at the past 2 major financial crisis – the Financial Crisis in 2008 as well as the dot com bubble in 2000, the peak to bottom is more spread out and takes longer.
Comparing that to COVID 19 where the impact should theoretically be a lot worse than the previous crisis, the chart clearly shows that we are still at the beginning of the crisis.
Even during the 2009 financial crisis or the SARS crisis, people are surely still spending, unlike now where the whole of Singapore is under a “lockdown”.
The latest world economic outlook published by IMF also paints a similarly bad picture where global economies is set witness one of the worse economic contraction in history.
So we need to reassure ourselves again and again that after looking at the recent bull run up, the worse is yet to come. How can this be a V shape recovery and how long more can we expect the prices to go up?
For those who are almost 100% vested – surely it doesn’t make any logical sense for prices to recover back to 3 months ago with all that has happened?
How can the market price behave as though nothing is happening outside in the real world, and that we can just “discount” the impact of the COVID 19?
This reminded me of the feeling when bitcoin prices are hitting its all time high every single day about 2 years back. Everyday the prices are just going higher and higher, until everything starts falling apart.
Giving Into FOMO
Of course, while it is easy for us to rationalize all of this, but we are all but weak humans filled with greed.
To avoid missing out in case we are wrong, and caving into our FOMO-ness, we made 2 more counter purchases over the last few days:
- SPH REIT – Trading at below NAV and may go into the student accomodation business, with a 45% upside.
- Centurion – Trading at below NAV (0.54). Been holding onto Centurion, exited it few weeks ago, and reentered again at a lower price, with a 47% upside.
What we have been buying is into companies which fulfill these requirements:
- Below their NAV – great businesses which are undervalued now
- Has a good sponsor – wont close down
- At least 40% upside to previous high
If the prices plunge further, we are more than happy to average down on the counters we picked up over the past 2 weeks.
With the two new entries onto our portfolio, here’s an update to our war chest:
|Mr Budget War Chest||S$70,000|
|Mrs Budget War Chest||S$30,000|
|Mr Budget Home Loan War Chest||S$50,000|
|Mrs Budget Home Loan War Chest||S$150,000|
Our home equity loan has still not come in yet so hopefully that will be in soon for us to do our cash allocation strategy.
Through it all, we need to constantly remind ourselves that, this is most probably not a V shape recovery, and it is very irrational to expect prices to keep going up.
So if you are feeling FOMO – it’s a normal feeling and you are not alone, but please dont let irrationality takes over.
If you have to take some action, like us, please only buy in small batches and only on counters which will not crash too badly if there’s another upcoming crash. Don’t go 100% vested now. Currently, counting our incoming home equity loan, we are probably only using 20% of our available war chest.
Stay safe folks! 🙂
Also do let us know what topics you’d like us to cover or if you have any questions to ask us.
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