Tuesday, July 15, 2008

My bear market strategies

I believe everyone already knows the US market has entered into bear territory recently. As an investor, what should your next course of action be? First of all let me quote an excerpt from the book of Intelligent Investor by Benjamin Graham.

“…for anyone who will be investing for years to come, falling stock prices are good news, not bad, since they enable you to buy more for less money. The longer and further stocks fall, and the more steadily you keep buying as they drop, the more money you will make in the end – if you remain steadfast until the end. Instead of fearing a bear market, you should embrace it.”

I would like to share the strategies that I intend to adopt during the next few months. Please bear in mind that I am taking a long term view of the market and thus those strategies may not fit into your short term strategies.

Stick to my portfolio
I am sure many of the investors who jumped into the market last year must be in deep losses just like I am in right now. I admitted that I am not intelligent and experience enough at that time, buying into companies with high valuations and have little margins of safety.

Currently my overall stocks portfolio is probably down by 25% but I do not have the slightest intention to liquidate all of them. That is definitely the worst decision to make in this kind of situation. As long I am holding a diversified basket of stocks, I believe the portfolio should recover when the market turns positive again.

Hold my purchases
The month of July and August will be crucial reporting months for some of the listed companies. I shall wait for my vested companies to report their quarterly earnings before deciding to take further action like whether to average down or not.

A fundamentally stable company should be able to withstand the 2nd quarter slowdown. If it can generate positive earnings or at least not exhibiting a drastic negative change in earnings, then it is a good sign for me to buy more provided its valuation is still attractive.

Spread my purchases
I doubt anyone can accurately time the bottom of a bear market. So as to eliminate the risk of buying at the wrong time, it is wiser to spread my purchases into smaller ones at different periods. Just like what I did in the past few months, I shall continuously and diligently invest a portion of my income into stocks every month.

Overweight on oil and energy related stocks
We heard the price of crude oil going into record highs almost each day. Therefore I will remain overweight on oil and energy related stocks but of course not to be excessively exposed to the same sector. I am eagerly waiting for the quarterly reports of Rotary, KS Energy and Swiber before deciding to top up more.

As the market is cyclical in nature consisting of shorter periods of bear market and longer periods of bull market, I believe my patience to remain invested at all times can pay off when the market sentiment turns positive. In the mean time, I am looking forward to collect more dividends.

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