What Should we do during stock market drop - Part 4

 

Rebalance your portfolio after things have calmed down

Diversification is important for successful investing. Although I’m a fairly aggressive investor, bonds and real estate securities make up about 20% of my portfolio.

After a volatile period in the market, the value of your investments may change enough to shift your actual asset allocation away from your target. There’s no rush, but big movements in the stock market are a good reminder to give your portfolio a checkup and consider making some moves to bring your portfolio back into balance.

What Should we do during stock market drop - Part 3

 

Buy stocks (if you were going to anyway)

The best time to buy investments is when you have money to invest. The best time to sell investments is when you need money for something else.

That said, if you’ve wanted to invest but have been dragging your feet for whatever reason, you might see the stock market crash as a buying opportunity. No, you don’t know if the market is going to go back up or continue to go down. But you do know this: Stocks are about 10% cheaper than they were last week.

What Should we do during stock market drop - Part 2

 

Resist any urge to sell stocks

Selling stocks in panic is the worst thing you could do after a stock market crash. Successful investing is about buying low and selling high. When you sell after a crash, you do just the opposite.

And if you think you can just cash out for now and then get back in when the market improves, consider this: You have no way of knowing when the market will swing back. And there is a big cost to missing just a few really good days in the stock market.

What Should we do during stock market drop - Part 1

 

Nothing

For long-term investors, the best thing to do when the stock market crashes is nothing.

Take a breath, turn off the news and—whatever you do—don’t log in to view your account balances.

A Recession May Be Coming. But so what?

 You may think that recessions and bear markets go hand-in-hand. But they don't. In fact, "normal" recessions don't lead to bear markets.

In the early 1980s, a U.S. economic recession led to just a 15% drawdown in stocks. The early 1990s recession similarly led to just an 18% drawdown in stocks.

Sure, the early 2000s recessions resulted in a 40% stock market collapse, while the 2008 recession sunk stocks by 50%.

But this is not that.

In 2000, we suffered from gross overvaluation. The S&P 500 was trading at 26X forward earnings, with a 10-Year Treasury yield above 5%. Today, the market is trading at 19X forward earnings, with a 10-Year Treasury yield below 2%. Today's market valuation is significantly lower both in absolute and relative terms compared to what we saw in 2000.

Meanwhile, in 2008, the entire U.S. financial system was on the verge of collapse. We don't have that today. Balance sheets across banks, corporations, and households are cash-heavy and very strong. Interest rates are very low. We do not have another 2008 on the horizon.

So, in the grand scheme of things, if we do head into a recession in 2022/23, it will likely be a run-of-the-mill recession -- like the early 1980s and early 1990s -- in which stocks dropped less than 20%.

Adapted from:

https://investorplace.com/hypergrowthinvesting/2022/03/a-recession-may-be-coming-prepare-for-it-by-buying-growth-stocks/

The Stock Market Crash is here!

Corrections till now:

Dow Jones 12.6%

S &P 500  14.6%

Nasdaq Composite  21.9% 

We should be seeing further downside...

Rotate back to technology stocks, gold, says DBS

DBS is advising investors to rotate back to pandemic-proof assets, particularly technology stocks and gold. The switch to a recovery play in anticipation of vaccine discoveries, it says, is showing signs of “fatigue”.

According to DBS, the technology-heavy Nasdaq Composite Index over US small caps had peaked on Aug 26 last year. The index had subsequently undergone a sharp relative underperformance as global portfolio allocators jumped onto the bandwagon of piling into domestic plays in anticipation of vaccine discovery.

“Covid-19 cases are rising while vaccination among developing countries remains slow. A delay in the return to normalcy for businesses will weigh on global growth,” say Hou and Cheang.

The momentum in positive macro data is also approaching a peak, according to the bank. At 64.7, the US ISM Manufacturing Index is looking “toppish”, it says. In fact, a retracement in the index has historically coincided with a moderation in the rally on S&P 500 Index, it adds.

Thirdly, the US Treasury (UST) bond yields are retracing despite strong macro data. This suggests rising caution on the economic growth assumptions in 2021, says DBS.

Adapted from 

https://www.theedgesingapore.com/capital/investing-ideas/rotate-back-technology-stocks-gold-says-dbs (30 Apr 2021)