AFTER EVERY BULL market comes a bear market. I believe we are now moving into a classic bear market scenario together with China and USA.

In a bear market, it is easier to pick prospective winners and multi-baggers, especially towards the lower half of the bear market.

I have learned the hard way that it is not wise for a small investor like me to buy and hold stocks during the first 12 months after the market peak (STI peaked in April 2015 this time). “Buy & Hold Strategy for long term or forever” is clearly not suitable for everyone.

According to Bloomberg Billionaires Index, 47 billionaires lost one billion or more each just in the first week of 2016 US market tumble; Bill Gates lost $4.5 billion. All of them are filthy rich and such paper losses are nothing to them. It all boils down to one’s investment objectives, holding power and risk tolerance.

Personally, I favour accumulating good blue chips at least 12 months after the Index reached a peak. I would then be able to see a full blown bear market with good stocks selling at well over 30% to 50% discounts, and adopt a policy of accumulating more at lower prices.

In this way, I can avoid buying too early and too high (catching big falling knives) and also avoid missing out on rare great buying opportunities during the lower half of the bear market because of the natural great fear or phobia (inherent in most investors) of buying a stock only to see it become cheaper.

For stock picking during a bear market, it is always wise to pick the leaders of the respective business sectors.

GlobalInvacom satelliteWaiting for Global Invacom's satellite business to pick up.As for small and mid-cap stocks (having higher risks but higher rewards than blue chips), I am keeping an eye on –

 1. Ezion and KrisEnergy for eventual recovery of oil price further down the road.

 2. Global Invacom for its business to pick up. (See: GLOBAL INVACOM: 50% of market cap is net cash)

More prospective multi-baggers could surface as the bear market progresses but one must be mindful that stocks get bashed down for good reasons; however, if they do not go into demise after 18 to 24 months into a bear market, their recovery prospects should be good, especially if the companies are well-managed and in cyclical businesses.
I decided to sell off all my stock holdings in mid-2015 (except for a few lots of shares that I wanted to keep for the purpose of receiving annual reports and attending AGMs) after taking into consideration the following factors:

» Market Time Clock

The US market has already been in a bull run for over 6 years help along by all the QEs. The DJIA had risen from around 7,000 in March 2009 to a record high of around 18,300 in May 2015, a rise of over 2.5x. The S&P 500 rose from around 680 to 2,130, a rise of 3x.

The market might be viewed then as being at the upper segment of the bull market. With the economic slowdown in China, Europe and many other countries and also the downturn in commodities prices like copper, iron ore and crude oil, it would be difficult to envisage a continuation of the US bull run especially if company earnings are slowing down or declining.

Hence, the risk of a market downturn would be a great reality.

Although the Singapore market has been an ardent follower of US market it failed miserably in climbing to record high like its American counterpart this time round. Our poor showing could probably be due to the many past S-chips “scandals” adversely affecting market sentiment as well as the failure of the Shanghai and Hong Kong markets to also hit record high.

Under the circumstances, it does not need an expert to know that the ending of QE in America and the expected rise in interest rate would be a good excuse for a market correction to take place especially if China, the world number two economy, continued to slow down.

» Risks & Rewards

All investments entail taking risks. It does not take an expert to know that when stock prices are low, such as during the lower half of a bear market, the downside risk is also low but the upside reward is high. The opposite would thus be true when stocks are at the upper end of the bull market. Hence, investors should strive to invest during the lower half of the bull market whenever possible. They should reduce their holdings or stay out of the market at the high end of a bull market, unless they are very long term or “forever” investors.

History has shown that most investors make money in a bull market but only to give back part or all of their gains (realised and unrealised gains) in a bear market. I have been one such investor. I hope you are not.

May you have a successful & profitable new year and may all your stocks be able to jump up like monkeys this year! Happy Lunar Monkey Year!


These posts were originally posted by Observer2 in the NextInsight forum.


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