Dealing Bear Market as a Long Term Investor

The last 2 weeks saw the worldwide market in a wild seesaw and I started to question myself on what to do if the drops continued through. Being one that started investing only in 2011, I had never experience a bear market akin the generation that never experience the Long Night in Game of Thrones. Therefore, this post shall help illustrate my thought process on my road map in case of a bear market.

A little background on what happened over the last week:

• On Wednesday, China cuts benchmark interest rates by 25 basis points to 4.6% and cuts banks' reserve requirement ratio by 50 basis points. This moves releases capital to stimulate the economy, as well as the possibility of propping up share price.
• On Black Monday, Dow Jones lost 1089 points on opening and claw back some losses to close down 586 points. 
• VIX, which gives a measure of volatility in the market spiked to a intraday high of 53, highest since 2009
• Following which on Tuesday, STI lost 4.3% to close at 2843.39 (lowest close of the year)

"The cheaper things have become, the more I’ve wanted to buy".

- Warren Buffet

1. Keep Calm

Keep calm. Market volatility always exist in the market and good investors/traders should be steady and react calmly to the market. Draw out an investment plan and stick to it. Remember that stock investing is a long term commitment. These few months and years of volatility and news are just noises in your next 50 years of investing, assuming you are young. If you can be zen about living and religion, I'm sure you can translate the zen to investing. These moments shall pass and you should be looking at the larger picture eg. which companies have a competitive moat and can survive long? which companies are capable of generating long and sustainable earnings?

So start drawing a plan now and start following it!

2. Review Portfolio

All my stocks were taken a hit during the past month. Also, note that today's market posted a rally of which ST Engineering had an incredible 8% gain in a day. This meant the drop were even uglier somewhere during the month.

Example QN: Is there any particular stock I want to increase stake in especially with such discount?

HPH Trust: With the China market in such volatility and economy in much uncertainty, I would not like to increase exposure to this stock even given the good yield based on historic dividends. Personally, I feel that if there is to be another prolonged market downturn, it will probably come from China. With container port businesses very tied to economy, I will not risk being caught further in wrong side of trade

Bank of Ireland: Banks are not defensive in nature and coupled with the fact that it is a foreign stock, I definitely will not increase stake in BKIR

Singapore Post: Singpost has not had such good price since 1 year ago. (Note how media normally use words like "low", "bad") At $1.78, the dividend yield is at 3.9%. It is very tempting to nibble at this stock. Singpost is a relatively defensive stock given its Mail business. However with the lower yield and newer businesses like Logistics and eCommerce, the status of Singpost being defensive is questionable. I would say Singpost at $1.78 is a "meh" buy  given my cursory analysis.

Straco: Straco is another business whose main revenue is generated from from the China. Unlike HPH Trust, I look more favourable to this stock and hope to accumulate more through the large bid spread in the stock. For example, Straco closed at $0.885 but nobody was above my buy queue of $0.805. With the eventual freeing up of China's economy, Straco can capitalise on China's transition to a consumer market. However, when I buy this stock, I should recognised that the gains will not be immediate since tourism is tight to economy strength as well.

ST Engineering: Among all of them, I would like to accumulate more on ST Eng the most. If recession is on us, ST Eng is a safe and defensive stock to own. With its 5% yield and a business that does not correlate much to the economy, this stock is the best to hold in a recession. If price goes down, give me more!! As in my earlier post, ST Engineering business has a long way to go given its ties to the Singapore's Defence Force and drop in price means I get to buy on discount.

There can be other questions that can be asked when reviewing your portfolio. I am not going to elaborate much because I got lazy but here's an another example.
Example QN: Is there any stock that cannot weather a recession and I should sell?

3. Look for New Stocks

Opportunities always present itself during a market correction. 

"Be greedy when others are fearful"

- Warren Buffet. Again

Even though there are cheap stocks left and right, always make sure there are still values in them. If a market recession does indeed wash over the world, there is going to be some companies that do worse than others. Small companies are more susceptible to go out of business compared to conglomerates. Utilities will be more recession-proof than say... financials. Therefore, know what you are buying into even though you are buying at a discount. 

Some stocks I am lusting after:

(Disclaimer: This is just my brief analysis and if you are interested, do your own due diligence. I do not want to be responsible for your loss. I don't get paid enough, if at all, to suffer any complaints)

TigerAir: With crude oil at such low prices now, it is a wonderment that airline stocks like SIA and TigerAir are not doing well. I prefer TigerAir over SIA because of the potential turnaround story. Admittedly, SIA is a safer bet with more diversified holdings and also stakes in TigerAir

• "The Group will also benefit progressively from lower oil prices, as the proportion of older fuel hedging contracts undertaken before the fall in price decreases. "   - 5 May 2015

• "... an operating profit of $0.6 million in the quarter ended 30 June 2016 (“1QFY16”), compared to an operating loss of $16.4 million recorded in the previous corresponding quarter."  - 22 July 2015

• Oil was the 60's range in May and currently in the 40's range. Stock price of TigerAir actually dropped

Keppel Corp: The sustained low oil price will definitely hit Keppel hard. Unlike TigerAir, Keppel's stock price is expected to drop if oil price continues to be low. Year-to-date, Keppel has already lost 20.5% of its market value. Keppel is attractive because:

• Diversified well enough to weather a recession. 65% of revenue is from the adversely affected Offshore & Marine. Though high, it will not be expected to completely lose this source of revenue. Other segments like Property and Infrastructure should ensure Keppel tide over any recession

• Growing dividends over the years. I'm sure dividend will drop in the coming periods but with the recovery of the business, I trust the management will resume good dividend. In the meantime when stock price is low, enter to get obtain high future dividend yield 

Reits with resilience to recession + high dividend yield (KIT, Soilbuild Reits etc)

• Drop in price translates to higher dividend yield. Avoid retail Reits as recession poses as an investment risk

• Eventual US interest rates will also cause a kneejerk reaction among Reits and Trusts. I will put off any decision to buy them and the overhang on US interest rates is removed

So this are the three steps I have mapped out to deal with a bear market as a long term investor. Stay safe but keep a lookout for bargains. If you cannot deal with a market that is red day after day, I will suggest to just not look at price quotes at all. If you have more points to add or stocks to suggest, do leave a comment. It will be most appreciated.


Update on 6 Nov 2015: SIA is offering to buy TigerAir share at $0.41. Massive heart pain because I was waiting for enter at $0.27 all along. Admittedly should have seen this coming since like I mentioned, Tigerair is turning around..