The Next Big Crash - Are You Prepared?

[CityFarmer]

I've never seen a market so dead after CNY. Felix, I agree 10% is a good guage. I would prefer a gap down of 50+ points will prove an entry opportunity. Somehow I feel counter specific are dropping faster than the index. Anyone sharing similar sentiment?

Its really been a disappointing start.

I don't bet ONLY on market crash, but a "crash" on individual stock, and it seems opportunities are available.

I have the same view that some quality stocks did drop much faster than the index.

IMO,

Individual stocks crash 10% or more due to the following reasons:
1) insider selling
2) rights or placement
3) poor results
4) macro news affecting outlook, e.g. Tapering impact on reits, property curbs.

When the general sentiments is poor and conincide with one or more of the following, there is always a tendency to overshoot to the downside.

Look at how badly wingtai is hammered relative to other property counters, and how HPH and APPT is affected by 1) plus poor sentiments.

The problem is, if the reason is 3), it might take a long time to recover even if market sentiments improve.

Well said. I am looking more on 4), which Mr Market might overly negative on its near term outlook.

[Temperament]

Yes! The market's sentiment can over rule all fundamentals of stocks and human's logic. Remember a genius like Isaac Newton:
http://www.sovereignman.com/finance/how-...ble-13268/

December 10, 2013
London, England

[Editor's Note: Tim Price, Director of Investment at PFP Wealth Management and frequent Sovereign Man contributor is filling in for Simon today.]

For practitioners of Schadenfreude, seeing high-profile investors losing their shirts is always amusing.

But for the true connoisseur, the finest expression of the art comes when a high-profile investor identifies a bubble, perhaps even makes money out of it, exits in time – and then gets sucked back in only to lose everything in the resultant bust.

An early example is the case of Sir Isaac Newton and the South Sea Company, which was established in the early 18th Century and granted a monopoly on trade in the South Seas in exchange for assuming England’s war debt.

Investors warmed to the appeal of this monopoly and the company’s shares began their rise.

Britain’s most celebrated scientist was not immune to the monetary charms of the South Sea Company, and in early 1720 he profited handsomely from his stake. Having cashed in his chips, he then watched with some perturbation as stock in the company continued to rise.

In the words of Lord Overstone, no warning on earth can save people determined to grow suddenly rich.

Newton went on to repurchase a good deal more South Sea Company shares at more than three times the price of his original stake, and then proceeded to lose £20,000 (which, in 1720, amounted to almost all his life savings).

This prompted him to add, allegedly, that “I can calculate the movement of stars, but not the madness of men.”

[weijian]

80/20 is good, you still have 20% bullets to fire

I was 90/10, but now that the index has reached 3000 or less, I gonna hit 100% vested by end of this week.

The index may go lower... to say 2700, which was the level when we had the European crisis.
However I believe I do not have the ability to time the market bottom, it it goes lower to 2700 , 2500.. so be it, at 3000 I think I'm getting a decent price on the blue chips (example 11 times earnings on banks)and I would be quite confident in making at least 10-15% long term returns(say buying now and holding for a period of 3-5 years)

Cheers ^^

Good for you.
As long as you know what you are doing, you should have no regret. Who can be sure the market can not go even higher to 3600 or 3700 or even > within the next 3-5 years? Meanwhile enjoy your dividends collection throughout the years.
Don't worry about what others do or say is a very important principle to me. Because we are all different. And we can make money in a different ways

Indeed. For the person who is overweight in cash IF the index hits 3700, it would be plain pure torture watching his neighbour get rich. For the person who is underweight in cash IF the index hits 2500, it would be pure angst to fight against your fears of selling and nagging from your spouse. Whichever scenario eventually pans out, we should not overestimate our stomach to take losses and our ability to keep composure in the face of pure torture/angst.

[Temperament]

80/20 is good, you still have 20% bullets to fire

I was 90/10, but now that the index has reached 3000 or less, I gonna hit 100% vested by end of this week.

The index may go lower... to say 2700, which was the level when we had the European crisis.
However I believe I do not have the ability to time the market bottom, it it goes lower to 2700 , 2500.. so be it, at 3000 I think I'm getting a decent price on the blue chips (example 11 times earnings on banks)and I would be quite confident in making at least 10-15% long term returns(say buying now and holding for a period of 3-5 years)

Cheers ^^

Good for you.
As long as you know what you are doing, you should have no regret. Who can be sure the market can not go even higher to 3600 or 3700 or even > within the next 3-5 years? Meanwhile enjoy your dividends collection throughout the years.
Don't worry about what others do or say is a very important principle to me. Because we are all different. And we can make money in a different ways

Indeed. For the person who is overweight in cash IF the index hits 3700, it would be plain pure torture watching his neighbour get rich. For the person who is underweight in cash IF the index hits 2500, it would be pure angst to fight against your fears of selling and nagging from your spouse. Whichever scenario eventually pans out, we should not overestimate our stomach to take losses and our ability to keep composure in the face of pure torture/angst.

Whichever scenario eventually pans out, we should have prepared for it adequately in terms of finance(personal's cash flow) and psychology.
i think both are equally important. But psychology is most important because if you don't have it you won't prepare for it in terms of finance, your spouse's nagging, etc....

Hee! Hee!
My spouse is not interested in money matters as long as she got enough to spend and yet within our means.

[CityFarmer]

On top of QE tapering, China is another contributing factor. It is interesting to see those markets having their 1st day of trading in Horse year tomorrow...

World stocks fall as China manufacturing slows

TOKYO — Global stocks were mostly lower today (Feb 3) as signs of weakness in another China manufacturing survey added to lingering jitters about developing economies.

In early European trading, major benchmarks were lacklustre. Britain’s FTSE 100 inched up 0.2 per cent to 6,522.24 but France’s CAC-40 was down 0.1 per cent to 4,163.23. Germany’s DAX fell 0.1 per cent to 9,293.72. Futures augured modest gains on Wall Street, with Dow Jones and S&P 500 futures both up 0.1 per cent.

The Nikkei 225, the barometer for the Tokyo Stock Exchange, closed down 2 per cent at 14,619.13 as the yen has reversed some of its weakness against the dollar in recent days, which is a negative for exporting stocks.

Also negative for sentiment was an official Chinese manufacturing survey that showed factory output grew at a slower rate last month compared with December. The survey released on the weekend followed a HSBC survey that showed a contraction in China’s manufacturing.

Markets were closed in Hong Kong, China, Taiwan and Malaysia for Chinese New Year holidays. Seoul’s Kospi dropped 1.1 per cent to 1,919.96. Among the Asian markets open for business, only Thailand posted gains after national elections took place yesterday without major violence. Australia’s S&P/ASX 200 fell less than 0.1 per cent.

The financial markets in several developing countries including Turkey and Argentina have been shaken recently by concerns that growth will slow and money will flow out of their economies as the United States Federal Reserve tightens its monetary policy. That has knocked many stock markets, which were ripe for a pullback after big gains last year.
...
http://www.todayonline.com/business/worl...ring-slows

[wahkao]

do u guys have stop loss to get out from the crash?

[safetyfirst]

I think it is smarter to not check the daily prices than to set a stop loss. Have you ever heard warren buffett, charlie munger or peter lynch ever talking about stop loss?

[Big Toe]

Maybe it's coincidence. Falling stock prices is in tandem with falling property prices.
The only one that's defying gravity is car prices. While valuation is not excessive on the stock market,
the same cannot be said for the property market. If the economy holds up well, we might see gradual softening
of property prices. If it does not, there will be much more pain/$ lost on property than on the stock market.

[DP28]

I think it is smarter to not check the daily prices than to set a stop loss. Have you ever heard warren buffett, charlie munger or peter lynch ever talking about stop loss?

That's true because those folks you mention already did their enhanced due diligence prior to investing in any company of their interest.. whereas common folks like us apply a more detail fundamental analysis.. Something and sometime we can still get wrong. In additional, they don't do stop loss because they usually invest in a substantial stake (e.g 5% of co) their utility function is highest that cut loss does not apply. Insofar, most common cut loss applies to SWF or pension fund.. They call it "portfolio rebalancing".

IMO, The key purpose of stop loss is mainly use in leverage products when you get a margin call that is common in FX. Or, you have max out your investable funds that it affects your livelihood..

I think most VBs here are sensible investors that doesn't warren stop loss function.

[felixleong]

US down 2% last night, bear bear lai liao