The Market Crash – The Economic Signs We Are Looking For And When We Will Deploy Our Cash

One of the biggest dilemma that we are facing now is, when should be deploy our capital back into the market. 

The sensible response to that is, keep DCA-ing now because one can never successfully time the market. That’s especially true because who are we if professionals themselves can’t time the market correctly.

Our cash in hand is limited because we have been constantly investing throughout the past one year. Our equity portfolio is now at -20% and we expect the position to drop slightly further when companies announce their earnings in the next two quarters.

In reality, all of us are part gamblers and it is challenging to continue to DCA downwards, especially when we are now presented with a once in a lifetime opportunity to accumulate stocks at great value. 

So instead of buying down and accumulate stocks this few months, we will be looking out at these signs before we start deploying our cash.

Recovery of global travel demand

The global and local economy is powered by production and productivity. Both of these is in turned catalysed by the workforce.

If human interaction is still low, productivity and production will decrease, leading to decline in economy and eventually leading to recession.

So the question then is how do we get a barometer to the “recovery of human interaction”. The answer to that – the global travel demand. 

Empty planes now

If global travel demand is restored, people will start to travel for trade meetings, conferences, or even travelling for leisure which will boost local economy.

All these will increase local spending, which are all great news for companies globally. 

The slight good news is that, China has announced that shopping malls are starting to buzz again.

Unemployment rate will go up, housing mortgage default rate will increase

Another ripple effect of the virus is that, companies have freezed hiring.

I think companies which are faced with big cash flow problem will start to cut their manpower cost at part of cost cutting measures. This will lead to an increase in unemployment rate. 

Unemployment rate is bad news – this means that housing mortgage default rate might increase.

Once we see the recovery of the default rate, I think we may potentially be looking at the recovery of the local economy. 

Of course, this is one of the last lagging indicator for the recovering economy, so we will be looking to deploy our cash when the housing mortgage default rate starts to hit the news. 

Constant Battle Between Buying Now And Waiting

For now, Mrs Budget and myself are prepping up our war chest by seeing exactly how much we can invest, where can we get more cash, and we have drawn up a shopping list once we see some signs of recovery. 

We may deploy 10-20% of our war chest soon because some prices of REITs are just unbelievably attractive, and warrants strong margin of safety. 

However, we are also mindful that any bounce back now is just a dead cat bounce because we really haven’t seen the worst from the virus globally. Countries have not seen the tapering off of the virus yet, and it is really too early to access the impact of the virus to their business. 

To give a better context, the stock market crash only started less than a month ago!

Companies will still have to announce their actual earnings, and we have not hear anything from the government in terms of the second economy stimulus package.

Also what if Singapore implement a full shut down since everyday cases are going up? Then the price all local retail and commercial REITs will take another dive.

Hence we are constantly battling between: “Wa damn cheap now! Buy buy!” versus all the reasons we laid out earlier in this article – that the ripple effect is not fully internalised yet.

Our logic is that, if it’s a clear sign that in the next few months it will be a downward slope, why do we DCA now?

On theory and paper it is easy to follow through with DCA-ing, but in reality, we find it a bit challenging – at least for the next 1 – 2 months.

Adding this here for memory sake – on 16 March, only 2 counters were green.

Because of the sudden market crash, we will be viewing our existing portfolio which is in the red now (as with everyone’s portfolio who have been investing in the past 5 years) as a cold storage. Wont be cutting loss and we will just wait for the recovery of the portfolio.

For the existing portfolio, we manage to sell about 20-30% before the mega plunge to take profit, but overall we are probably down by 20-30% in terms of portfolio value. We expect a further 10% drawdown from that.

This market crash is also a good time for us to reset and relook into our portfolio strategy – because our current portfolio are a bit of a rojak now due to a combination of various reasons. 

Our first few stocks were bought as far as 2 years ago, and it’s based on the “attractiveness” and value of the counter at that point. We then added new counters along the way as new “attractive” counters came by, and hence, it’s rojak now. 

With the market crash, this presents a good time to reset our portfolio mix, and sort them according to fair allocation to different sectors.

Hence our priority shopping list during this great REIT Singapore sale will be based on adding exposure to sectors and countries we were previously underexposed, for example:

  1. Data Centre – Keppel DC REIT
  2. India – Ascendas India Trust
  3. Transport – Comfort Delgro

Will probably be sharing our shopping list soon along with updating our portfolio and net worth impact from the market crash.

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