Forum Topics Jan 2022 red markets - discussion
bjbart
3 years ago

Interesting table highlighting recovery from past Australian equity bear markets from this AFR article. Patience is key

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https://www.afr.com/wealth/personal-finance/how-to-survive-a-market-crash-20220208-p59us1?utm_medium=social&utm_campaign=nc&utm_source=Facebook&fbclid=IwAR0LF5vJuw2FdRHx73q8cGBLU8l-DTk8TEqgCrRBTPASbEIUWFaMDEDbHLI#Echobox=1644533257

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Slideup
3 years ago

I think one of the aspects of being invested during a big drawdown that is often overlooked is that if you are invested in quality stocks is the opportunity to participate in capital raises at the bottom. Often the money that you initially “lost” in the drawdown can be recovered relatively quickly during the recovery. So while it took 18 months to reach a new market high, individual companies made it back much quicker. The caveat here of course is you need to be in high quality businesses that aren’t hocked to the eyeballs in debt or have some kind of sustainable business model.

As a personal example I bought my first shares in Jan 2007, it was just after the first sell off that was a precursor to but prior to the GFC. I bought a commsec share pack (5k that they split between 5 ‘blue chip’ stocks) I think from memory they were Westpac, BHP, Suncorp, Amp and Brambles. All were going well they had recovered in price and were up 10-15% over the first 6-7 months of the year. I was then overseas doing field work and had no real connection with what was going on back home or in the broader world and was just getting snippets of the meltdown, anyway came back to my shares being down 40-60%, but then the cap raises started coming and I remember WBC raised at $12 or so, I thin SUN was around $4, I subscribed to these raises and and the recovery started, and WBC was back to $30 and I had made more money on the cap raise part than the initial shares were worth. The other shares were similar but took differing lengths of time to recover. Some of this was luck, but a big part was just not panic selling on the way down, not needing the invested cash to meet living expenses and having a reserve of cash available to deploy at the bottom.

This experience really taught me to try not to get swept up with the herd and to think about why I want to sell- if I didn’t think it was worth selling last week, what has changed this week to make me sell and if it is only the share price decline that has changed then I can ignore it.



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lankypom
3 years ago

It's interesting that we all know - logically - that investing is a long term game, and that corrections/crashes/call them what you will are all part and parcel of the game. Yet emotionally it is very difficult not to respond fearfully to market downturns. I think that this community is a great safety valve where we can share our angst and get some good common sense feedback to stop us doing anything stupid.

About 35% of my RL portfolio is invested with Lakehouse (both funds), and the performance of these funds has mirrored my overall portfolio performance for the last year, so that at least gives me some comfort that I am no more stupid than the professionals.

Out of interest I created a chart showing the monthly change in my portfolio value since March 2020, when we first saw a big Covid-inspired correction. Surprisingly 2020 was mostly positive, with more up months than down, and the recovery from March 2020 was very rapid. 2021 was a very different story, with lots of volatility. My portfolio hit an all time high in August 2021, clung on for a couple of months, then has trickled downhill ever since. I have now lost the past 18 months of gains, but that is only on paper. As I am about to retire from gainful employment, I have been building up a healthy cash buffer, and have no need to sell any stocks for a few years.

So my response to the current correction is to do nothing. I have conviction in all the companies I own, and I'm happy - or at least willing - to wait a few years for normal compounding behaviour to be resumed.

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Chagsy
3 years ago

I forgot to add that my highly concentrated tech-heavy US portfolio (let's call it the Weed Money portfolio, to complement my Beer Money portfolio) had dropped nearly 50% to being only just in the green.

It has recovered 5-10% in recent days but still really exemplifies how volatile unprofitable, blitz-scaling companies are at them moment. I have no intention of touching any of them for another 5 yrs or so unless the theses break.

One of the companies I recently added was Market Axess (MKTX) which should benefit from the renewed volatility in bond markets. It had previously been a Lakehouse GG holding but hadn't done so well due to booming Equities and low volatility but is probably well set for the current conditions.

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Seymourbutts
3 years ago

It's not a fun time seeing your portfolio turn from green to red or, "profit turn to loss" - make no mistake about that.

When my confidence is tested I try to remember and tell myself a few things:

  • Nothing is realised until you hit that sell button
  • Play the long game - while that is easy to tell yourself when there are favourable market conditions, you need to reinforce that when there are downturns
  • Hold true to your conviction and thesis - has anything fundamentally changed within the business?
  • The market is imperfect - there will be bargains out there. I'm looking to see what I can collect at a good price.
  • This is normal

Personally, I'm applying my crypto thesis to many of my stocks; HODL. In saying that, I'm still assessing what is good value and seeing if some capital can be freed up and redeployed elsewhere to capitalise on anything I feel has been struck by the market's sledgehammer.

I'm still dollar-cost averaging into my ETFs (IRL) and assessing what I'd like to add-to or add-in.

I was late to the party for the COVID-crash only really getting into this investing thing in late 2020, so whilst it does sting to see the portfolio get hammered, I'm also slightly excited to see what I can collect at a lower price.

Lastly, something that has worked for me when there are these "red days" and the market is cranky - I just don't look at my portfolio as much. Definitely easier said than done, but if you can be disciplined to do this it certainly does help. Similar to if the missus/boyfriend/partner is cranky - you wouldn't go near them, sure you'd try cheer them up, but unfortunately we can't cheer the market up so I apply the former.

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