A rebound

An unexpected and quick rebound was staged by the STI. The market came back alive with the index climbing up from the lows of 2200 levels to the 2500 levels last week. From another perspective, YTD returns went from -30% and recovered to -20%. This bounce returned 10% in 4 weeks as volatility receded.

Did you catch the full range of returns? Maybe half of it? Or possibly much more?

If you stayed the course and held tight without selling, you would have caught the full rebound. If you sold something during the plunge, you would have lost some returns presented by the turn in market direction. If you have bought on the way down, continuing at levels below 2600, you would have recouped more than 10% because your base cost was lowered when averaging down.

No one knows if this market action is a dead cat bounce. It may or may not retest 2200 levels. It may go lower from here. The economy does feel bad with an extension of SG's circuit breaker, but the stock market is not perfectly correlated to it. Timing is hard.

Though we cannot control the market direction, we can control our actions. The risk is incurring permanent capital loss by selling out during the crash and failing to get back in time, thus missing on participating in any market upswing.

Few people have the rare predictive ability to call the bottom. With or without the volatility like these times, they would have gotten rich anyway. For the rest of us, staying invested in the market despite  the pain of holding a portfolio loss or better still, putting some spare cash to work, will likely be one of the best option to embark on the road to recovery.

Strengthen your resolve and hang on to the ride.

Comments

  1. UnknownApril 26, 2020 at 10:40 AM

    One can also benefit by switching out of lower quality n into higher quality stocks in these times(assuming your choices are correct) without commiting new capital.

    ReplyDelete
    Replies
    1. Rigid InvestorApril 26, 2020 at 3:41 PM

      It might not be a straightforward. Do you switch to better quality which might fall less should the market tanks further? Or switch to better potential, which had already fell substantially and might fall further, but with possibly a higher gain should the market bounces up higher from here?

      Delete
  2. UnknownApril 27, 2020 at 8:14 AM

    A better quality will fall less should market go down further n rebound more when market rises.
    A poor quality stock will go down further n may not rise even with a rising market.The delta can be large.
    The important thing is to chose the right pair.Whatever the movements, it will b in favour of the higher quality share in say,3 years.

    ReplyDelete

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