Improving Trading Mindset Over Time
23 March 2020. It was the fateful day global markets $S&P 500 Index(.SPX.US$ $SPDR S&P 500 ETF(SPY.US$ $Vanguard S&P 500 ETF(VOO.US$ $NASDAQ(NASDAQ.US$ $Dow Jones Industrial Average(.DJI.US$ $Apple(AAPL.US$ $Microsoft(MSFT.US$ $Netflix(NFLX.US$ $Meta Platforms(FB.US$ $Alphabet-C(GOOG.US$ $Amazon(AMZN.US$ $FTSE Singapore Straits Time Index(.STI.SG$ $Hang Seng Index(800000.HK$ hit bottom due to COVID-19. Seeing one’s portfolio in deep red can cause tremendous stress and send some into depression. The loss (be it realised or paper) can lead to hesitancy to inject more capital and missing out on gains when the market recovers eventually. To maintain a positive mindset, it may be wise to peg one’s overall exposure to equity to how much loss one can tolerate comfortably during a market crash before it actually happens.
Time and again, it has been mentioned to invest only what one is comfortable losing but what does that really mean? Having a portfolio down by $20,000 may not seem so bad if one saves $2,000 per month because the sum can be saved back in 10 months. In contrast, if one saves $1,000 a month, the loss will require 20 months to be recovered. This may sit well with some people but not others.
The figures in the table above are extracted from the Feb 27, 2020 CNBC article “Here's how long stock market corrections last and how bad they can get” by Thomas Franck. Based on these, we can take 35-40% and 20-25% (32.5x12 + 13.7x26 divided by 38=19.6) as reasonable estimates of the losses that will be sustained in a bear market and a market downturn (bear markets and market corrections overall) respectively.
Assuming 35%-40% to be $20,000, one may consider keeping stock investments within the range of $50,000-$57,142 and putting the rest of the funds in low-risk assets and a war chest for capital injection during market downturns. Obviously, this figure will vary from person to person, depending on their comfort zone and financial objectives and can be adjusted in tandem with changes in age, income, expenses and job security. A younger and more risk-tolerant person may prefer to use 20 or 25% and someone with more capital may have a higher threshold for loss than $20,000 in pursuit of higher growth.
Ups and downs are part and parcel of the market. Once the worst case scenario has been thought through, I then work on the following in my day-to-day trading to reach my target:
1) Focus on fundamentals and value. The stocks that I have researched and have strong convictions about can be held long term. Bull markets have higher returns (up to 149% for S&P500 according to fisherinvestments.com) and last longer (almost 5 years on average according to fisherinvestments.com) than bear markets.
2) Diversification reduces non-systematic risks.
3) Control emotions. Don’t give in to FUD or FOMO. Remember past lessons.
4) When the outlook is uncertain, it is better to suffer a small loss than to end up with a big loss that is difficult to recover from.
5) Continue to upgrade my knowledge and learn from others.
6) Above all, stay positive!
$Tesla(TSLA.US$ $Lucid Group(LCID.US$ $Alibaba(BABA.US$ $Mapletree Log Tr(M44U.SG$ $Mapletree PanAsia Com Tr(N2IU.SG$ $Mapletree Ind Tr(ME8U.SG$ $Keppel DC Reit(AJBU.SG$ $CapLand IntCom T(C38U.SG$ $FRASERS CENTREPOINT TRUST(J69U.SG$ $CapitaLandInvest(9CI.SG$ $DBS Group Holdings(D05.SG$ $UOB(U11.SG$
If you enjoy this article, please click the![]()
below and/or drop a comment.
Disclaimer: The above sharing is my personal opinion. It is not financial advice or a recommendation to invest. Please consult a financial advisor and consider your investment objectives, financial needs, financial position and risk profile before making any investment decision.
The Difference Between Investing and Gambling https://www.moomoo.com/community/feed/107626897342470?lang_code=2
If you enjoy this article, please click the
Disclaimer: The above sharing is my personal opinion. It is not financial advice or a recommendation to invest. Please consult a financial advisor and consider your investment objectives, financial needs, financial position and risk profile before making any investment decision.
The Difference Between Investing and Gambling https://www.moomoo.com/community/feed/107626897342470?lang_code=2
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
Read more
Comment
Sign in to post a comment
charles innis : kick ass
DadacaiOP charles innis: Thanks for taking the time to read and comment. All the best in your investment.
Meta Moo : The more you know, the calmer you are.
NANA123 :
respect
snoopy123 : cannot imagine losing 20% of portfolio.. so scary.. what is your take on stop loss strategy? thx
DadacaiOP snoopy123: During a market crash, such a decline is not unusual and it may be difficult to get out in time. If the stock has good fundamentals, it will recover when the market rebounds.
DadacaiOP : @snoopy123Also, if one is at a life stage where one can ill afford such a loss, it may be best to exit equity and move to low risk instruments.
Panda2102 : The market is testing us again now…
DadacaiOP Panda2102: It takes a strong heart to trade in the stock market. But I think the drop this time round due to expected increase oF interest rates won’t be as sudden.
Beloved Home : Cool! Thanks for the article!
View more comments...