Hello Grasshoppa,

Global market has been on a tough ride due to the pandemic since the last Global Economic Crisis. Many gurus have predicted this will happen but they couldn’t tell when. Last I heard was when Trump got elected as the President Of United States, some have predicted that this may cause the next Global Economic Crisis again. Could there be some truth to it?

If we look at the global market cycle for the past decade, we can see that there is a major economic downturn for every 10 years. This is considered the longest Bull Market in history between 2009-2020. What actually went wrong? Did a single man cause the market downfall or it is the wet market in China causes all this?

Current economic situation has caused panic among many investors resulting in a panic selling. Stocks have gone down by 30-40%, global oil price went down however gold price is on the rise. In my 33 years of living, I have lived through 3 economic downturns including the year I was born. LOL. Studying the past historical trend, the cause may be different but the market is reacting the same way during each downturn. Each panic selling is pulling the market down & some investors are losing or benefiting from it. Example of investors that are benefiting from it are Bill Ackman who is able to turned $27 million into $2.6 billion.

No doubt, s situation like this may cause panic to many people even for non investors as the disease is pretty scary to begin with. But as an investor, what is the right action that you should be taking? I am coming out with a few scenarios & since we are all based in Malaysia. I will be using FBM KLCI instead of S&P500 to share on a couple of possible scenarios based on the last economic downturn. Since investment terms can be complicated, I will try to use layman terms to make it easier for you to understand.

Panic Seller :
This applies to market traders or short term investors who are trying to cut their losses & predict the market. Many panic sellers will be selling once they realize that the market is experiencing a downturn. If you look at the purple line, it is between Jan-Dec 2008, those who sell during this time will definitely make some loss depending on when they sell. Some may never invest again after the economic downturn.

Market Waiter Investor :
Market waiters are always the best at predicting market upturn. It is either they never invest before or they will wait for the right time. If you refer to the line, usually they will start to invest when they can CONFIRM that the market is doing well & it is usually a few months after the upturn. As you can see, they may have missed out investing during the beginning of an upturn. We may also have a combination of both Panic Sellers & Market Waiters.

Optimistic Investor :
I know some investors that are always optimistic in any situation. They see the market downturn as opportunity to buy more. There are good & bad sides of it. If they are putting all eggs into 1 basket at one go, they wont able to sustain or return of investment during the market downturn. But if they average down or apply Dollar Cost Averaging (DCA), they may be able to earn money provided they are in for the long run. The thing is, we never know how long the market will be going down be down or how soon the market will take to recover. It is always best to focus on the company instead of the economy. We see essential companies like medical, gloves or food manufacturers are making money during this situation. Looking at the picture, Optimistic Investors who are applying DCA have the highest chance of survival & be profitable in the long run as long as they stay on course.

Looking at the chart, if the investor applies DCA & invest at each blue line that I’ve drawn, at 2011, they are able to get better ROI as they are investing when the market is low & high. DCA is definitely workable during good or bad market. How so? If you look at the long term trend from 2008-2018, market was experiencing an uptrend, not only did your stocks value increase but the dividend payment that you have received from the companies that you invested will generate extra income for you.

Did I Sell My Investment?

Based on what you have read, I think the answer is clear. I definitely invest for the long run & by applying DCA and I am optimistic that my investments will be profitable in years to come.

What Is The Best Thing You Can Do During This Period?

Diversification on your investments is always important. If you diversify well, the impact of current market situation will not be apparent. For example, gold value has increased with the current market situation. If your investment portfolio consist of gold, you can definitely see some profit from it. Also, if you have invested in glove companies or some food manufacturing companies, you may also notice that the stocks value are increasing. That is why diversification is important.

Since we are currently bounded to the Movement Control Order (MCO), take this time to read some investment books. It is a really helpful learning tool to guide you to be a better investor. If you have read most of the best recommended investment books out there, you will realize that their theories & guidelines are very similar to each other. This is the best time to read.

Remember Grasshoppa, you are not alone. You can always reach me if you need someone to talk to.

OSS!