Previous major events, Hong Kong protest and the Iran US war tensions didn't really put a dent to the investor's confident. A short dip in selloff and follow by fast V-shape recovery seem like a common patterns.
However, this time will be different. The market is full of fears now. The coronavirus outbreak strike the heart of world's most populous country causing a lot of uncertainty in the market.
When will this flu epidemic going to end? What is the impact to the economy? Can we justify the current market's valuation with this risk? With so much uncertainty in the air, a major sell-off is inevitable. Human's emotions can flip from extreme greedy to extreme fear like a switch. It will be madness when everyone try to exit the market at the same time.
When will this flu epidemic going to end? What is the impact to the economy? Can we justify the current market's valuation with this risk? With so much uncertainty in the air, a major sell-off is inevitable. Human's emotions can flip from extreme greedy to extreme fear like a switch. It will be madness when everyone try to exit the market at the same time.
You may think the speed of infections multiply at "fast and furious" pace, but that is nothing compare to speed of human's fear during the market selloff. A steep 1600 points dropped for Dow Jones index in just 2 days had become the casualty of human's fear. One thing is sure that "herd mentality" had overpowered humans' rational thinking. Could you still stay calm when others panicking?
If you follow previous my posting, you notice that I had been selling heavily and raising a lot of cash for the past month. I had been taking the road less travelled. Stay true to my believe, be contrarian when come to investing. I could be at the wrong side of the trade in a bull market, but I definitely don't want to be victimized in the selloff madness later.
The link to my previous posting:
Resist the Greed, be contrarian ......another profitable trade in Jan 2020
Profit taking Jan 2020...... Recalibrating risks
Investment Psychology....Investor's worst enemy
There is nothing to be fearful of the market swing. Take this period of human madness as an opportunity to scout for great investments idea. The best quote I learnt from Warren Buffett "Be fearful when others are greedy, and greedy when others are fearful". Sound very logical but it is not easy to follow in reality. You have to tune off all the noise in the market, and be yourself.
With the current situation evolving fast, here are my advice:
- Stay calm - nothing good come out from panicking, you could make mistake that you will regrets later. Separate your emotion from your decision making process.
- Take Calculated risk - perform risk analysis of the stock that you want to invest. is it worth investing base on Risk Reward ratio (3R).
- Scout like Eagle - Now is the best time to search for great companies to buy. Only in crisis like this, you can buy great company at cheap valuations.
- Get your hands Dirty - Set your investment plan in motion. You should be greedy when other is fearful. Remember, the market will recover eventually. So, fear not.
If you can execute this well, you will be very successful in investing. Always stay calm and be contrarian.
- William Cheng
Disclaimer: All investment come with great risk and should proceed with cautious. This is not an advice to buy or sell any stock. It is important to do your own research and analysis before making any investments.
