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A Tale of Two Market Participants

Updated: Mar 19, 2020

Once upon a time, there were two market participants.

The first participant liked to look at charts to time his entry and exit.

To him, the fundamentals of the companies didn't matter. The pictures from the charts spoke to him and all that matters were the stock trends and technical indicators.

His holding periods were usually a couple of days or months at best. Anything more than a year is considered too long in his opinion.

Because he had been successful in his initial attempts, he poured his entire savings into the market, leaving little or no money in the bank.

On top of that, he even pooled resources with some friends by promising them good returns. He was confident he can outperform the market index.

The second participant liked things to be slow and steady.

He would look at a company's fundamentals prior to anything. If the financials didn't make sense to him, regardless of how attractive the opportunity was, he would not consider.

His holding period was as long as possible. He believed that the market was volatile and always put aside money for an emergency.

When the market crashed, the first participant was at a loss. His game plan was thrown out of the window.

Not only his entire savings wiped out. he also lost his friends' money. When his friends knew about the losses, they immediately asked for their money to be returned.

It was then he realised he was gambling with his and his friends' money and didn't have a proper plan in place to cover the downside.

He started to believe that the market was a big casino, where the average person was bound to lose money to the big boys.

The second participant, on the other hand, was calm during the storm.

He knew that the companies could and would weather through the crash. More importantly, he knew very well people would continue to use the companies' products and services.

And despite his own portfolio was down by 10%, he was elated. He felt that the market was having a Great Singapore Sale where the premium companies were selling at huge discounts.

He was ready to deploy more cash into the market to make his money work harder for him.

At this juncture, who do you think would likely succeed in this game?

I believe the answer is pretty obvious.

By the way, these two market participants are real people. It's not some fairy tale story.

The first market participant was my younger self.

I was sold on the idea of trading but didn't have a proper game plan. I was all over the place and let my greed took over. It cost me my savings and I almost lost my friends.

When it was time to cut loss, I couldn't bear it. I was always waiting for a rebound. Instead of a rebound, the market just kept going down.

The second participant is my current self. I had learned my lessons about the market crash and became more cautious.

I took on a different approach and sleep much better at night.

Below are some key lessons I had learnt from my first fiasco:

1. Have a game plan (and stick to it)

The toughest part was I thought I had a game plan.

I had an idea of what to buy, when to buy and when to sell.

Yet, when the market changes the direction from what I had in mind, everything goes out the window.

As Warren Buffett aptly puts,

Only when the tide goes out do you discover who's been swimming naked.

And I ain't proud to say that I was caught pants down during the 2008 financial crisis. Not to mention that I had borrowed money.

In retrospect, I was thankful I didn't leverage. Otherwise, I would be in real sh*t now.

How do I know I have a game plan in place? Some questions I usually ask myself:

  • Do I have 3 to 6 months of emergency cash set aside?

  • In the event of the market crash and I lose all my investments, will I still be able to sleep soundly at night?

  • Do I have more than one source of revenue?

If the answers are yes to all three questions, then I think whatever plans you have put in place should be safe.

Some of my friends were puzzled about point 2. How can I withstand losing all my investments and still be able to sleep?

Well, that's because I don't put all my eggs in one basket. I have set aside cash to get endowments and retirement plans set in motion where I know after a fixed period, my capital is protected and I will have a secondary source of income then.

2. Business and life continue

There are some countries having lockdown due to the Covid-19 situation.

It is unprecedented.

It is unforeseen.

It is unknown territory for most of us.

Yet, we still have to find ways to continue with our duty to our clients, our companies and our family.

It reminds me of the segment from Rocky's movie.

It ain't about how hard you get hit, but how hard you get hit and keep moving forward.

We will overcome this situation, so stay strong!

3. The market will go down, so what?

Investing during when the market is going up is the easy part. The real challenge comes when the market makes a u-turn.

Most of us may have heard of the saying that there will be a market crash every 8 to 10 years. No one can correctly predict if this crash will cause a recession.

(I have some experts claim this crash will potentially cause a market depression.)

The S&P500 was down 25% from its high.

Source: Sharing from Wilson (colleague) in Whatsapp

My colleague, Wilson, shared an interesting fact:

How many days does it take for S&P 500 to drop by 29%?

  • 2000 dotcom bust - 360 days

  • 2008 financial crisis = 250 days

  • 2020 virus = 19 days!

The market will go down. The number of days for such a magnitude of a crash will get shorter. The question is so what?

If you are dabbling with money that you can't afford to lose, then you are like my younger self. Hopefully, after this episode, you will emerge stronger and have a better allocation of resources.

I see 3 main groups of people navigating through the current storm.

(a) Sell everything

You sell now and stop whatever losses (or profits if any) at this juncture.

If the market continues to go down, you can pat yourself on the back. The question I usually have is, at what juncture will you go back into the market?

Or are you going to sit on the cash until the market recovers (which by then, you may have missed a great bull run?)?

You can refer to an earlier post I had written regarding the amazing bull run during the SARS period.

If the market goes up and recovered, you would not have incurred the losses. Potentially you might have made some profits.

I find that selling when the market is down is easy, but re-entry is always the toughest.

(b) Wait and don't do anything

Well, some people I know are doing this as they are too fearful of the drop.

They are not used to seeing red in their portfolio and I respect that.

The ability to stomach a 20% drop is not for everybody. That is why most people are better off not participating in the market.

The fact that they have the holding power is good enough. Because I truly believe it is only a matter of time before the market recovers.

How can I have such high conviction it will recover?

I see it as cycles of life.

Just like after every winter, spring will come. After every major crash, a rebound will happen.

Paraphrase from our SGSecure,

Not a matter if it will happen, but when it will happen.

(c) Continue to RSP into the market

It takes a lot of guts and courage to do this when the market is going down.

Are we "catching a falling knife"?


But I wondér who will ring a bell when the market is at the bottom?

No one has a crystal ball. We may have some indicators which can point us towards the direction of the recovery, but no one can predict the exact moment.

Instead of worrying over the exact moment of entry, why not consider owning pieces of businesses that will pay you while you are waiting for the spring to come?

And when spring comes, I assure you that you will be grinning from ear to ear.

It reminds of another anecdote I read from David Kuo, the CEO of Motley Fool Singapore then.

He akin dividend investing in the market to buying fishball noodles at a stall where the uncle will give a random number of fishballs to customers.

The uncle gave 3 fishballs to the first customer and charged him $3.50.

The uncle gave 4 fishballs to the second customer and still charged $3.50.

Then comes your turn and you receive 6 fishballs at the same price.

At this juncture, you are likely to be happy because you got a better deal than the earlier two customers.

However, come to the fourth customer and the uncle gave him 9 fishballs instead.

You may now go bang your head against the wall. You could have been the fourth customer.

Yet, you wouldn't know unless you buy another bowl of noodles.

Mr Market is just the fishball noodle uncle. The fishballs are like your annual dividend percentage.

The best way to benefit from the uncle's random act of distribution is... to support the uncle by buying a bowl every day :)


Always have a game plan.

How do you know if your game plan is solid enough? Ask yourself these questions:

  • Do I have 3 to 6 months of emergency cash set aside?

  • In the event of the market crash and I lose all my investments, will I still be able to sleep soundly at night?

  • Do I have more than one source of revenue?

If your answer is no to any of these questions, then probably you need to find an alternative instrument that suits your risk appetite and objectives.

Or you need a proficient financial advisor to help you.

In the event of a market crash, business and life still go on.

Instead of complaining, have a victor's mindset instead of a victim's one. Find ways to profit from this situation instead.

Lastly, the market will go down at some point. So what?

Execute your game plan and get on with life. If you didn't put all your eggs in one basket, what is there to worry about?


Before I sign off, remember to wash your hands regularly!

Happy shopping! :P

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