• Timothy

Why I'm staying on the sidelines... for now.

tldr; With 25% of the warchest deployed, it looks like we're not approaching a turnaround anytime soon. I will need to be more patient and size accordingly to be able to last through this entire period.

OK. Let's be honest here.

There's no denying that the last few weeks has been pretty insane.

The sudden downturn in the markets has been swift, unpredictable, with lots of dead cat bounces. It is a time that many have been waiting years for, and we acted accordingly.

Shortists have also been having a field day (or, in this case, weeks), and Twitter feeds have exploded with them showing pretty insane daily gains. I'm pretty sure March would have be the most profitable that many would have seen in a while. It's not really difficult to see which way the market has been trending toward, anyway.

I have been buying. A lot. Over the last month I've been nibbling an average of about 2% of my warchest every alternate days. Total deployment has been roughly 25% of the warchest.

But looking back over the last two three weeks, with the bottom nowhere near in sight, I have to admit it's pretty emotionally difficult to keep buying when you know that prices will most likely trend downwards the next day. It kinda feels like throwing money away.

And so, over the last couple weeks, I did not place any buy orders, though some S-REITS were heading toward their 52-week lows and then recovering a bit after. Tempted? Yes.

If this virus is what most are predicting it to be, the fallout will not only be extensive (more than it already has), but will be prolonged. Even now as the govt has imposed even stricter measures. It's gonna be a long, long time before the economy recovers fully.

This time around, it seems the Western countries will get it much worse than the Asian countries. They've never been through SARS. Their infrastructure may not be suited for such a pandemic. Singapore being very trade-dependent, will depend on the recovery of these overseas markets. And so we should turn to macro-economic factors as guidelines to inform our decisions.

Will it take months? Years? Your guess is as good as mine.

But what we can control fully are our risk strategy, our warchest deployment plan, and our emotions.

Averaging down is still a valid strategy for most to follow, even in this climate, but I'm not comfortable using 5-10% of my warchest per week. That would make my funds last for only 3-5 months. I don't think this whole thing may be over that fast. I have been overly impatient, and too excited. I want my funds to last throughout the entire thing.

Even if there are deployable funds after bottoming out, the prices then would still be more attractive than what it is right now. So there is always time to buy. It's just a matter of how greedy we want to be.

And so if we're looking at an extended run of a 1 year bear market, I should only be putting in about 2% per week before the warchest runs out after 52 weeks.

Of course, with a decent savings rate, I should be able to supplement the warchest with my monthly salary. But I'll keep that as an afterthought for now, and not bang too much on that. As it already stands, it doesn't seem like this year will be a good year for pay increments and bonuses.

For now, I shall resist buying too much, and use the weekend to think of a more sustainable warchest deployment strategy.