Dear Friends,
Here is the link for the Annual Investment Report. I took some time to rewrite parts of the report because of the recent crash in the stock market, which has a significant impact on the outlook for 2016. Here is the link.
The recent market concerns about the state of the China's Economy and Oil prices have caused some of the stock markets around the world lapsing into a Bear market since the high reached in May 2015. Many of the markets are located in the Asia Pacific including Singapore, Japan, China and Hong Kong. The definition of a Bear market is a market decline of more than 20%.
In the mean time, our portfolio is 80% exposed to equities mainly located in Europe and US where the fall in equity prices are much more muted. However, there may be concerns that the 80% exposure towards equity will have an adverse impact on the portfolio and we should cut our losses right now. There are a few reasons why I do not plan to execute a cut loss at this moment of time and here are my rationales:
1) The sell-off is due to the blunder of the China's stock regulator resulting in another crash in the Chinese stock market and the continued fall of Oil prices. The reason behind the depressed prices are more attributed to speculation rather than fundamental reason which will correct itself in due time when the speculators lift their brakes off the accelerator. I will be more concerned should the reason for the crash is the popping of the property sector in China or the bankruptcy of a major economy like Russia. Low oil prices are good for consumers in general, especially in US, Europe and India and works more like a stimulant to the economy as people will have more to spend.
2) One of the key lessons I have learn from major crashes similar to this one, is that cutting loss when the crisis is in progress will result in the portfolio being worse off than doing nothing about it. The reason why is because the rebound from the bottom is often very sharp and fast, often contributing 30-50% of the rally. Cutting loss now will need me to accurately predict the bottom of the market and at the same time, factoring the time needed for the administrative procedures associated with the IFAST switch process, else we will miss out a big chunk of the returns that will come with the rebound. Maintaining the current portfolio and riding through the crash is the best course of action for now. The key of portfolio management is to get out of the market before any crash starts, else ride through it. As long as the positioning of the portfolio is not within the epic center of the crash, the recovery will often be fast.
3) So under what circumstances should we cut loss when a crash is on-going? This depends on the cause of the crash. If the crash is due to a leveraged asset, such as property, derivatives or a debt leaden major economy which will have a magnified effect due to leverage, that is when we will cut loss as these kind of crisis typically will take years to resolve.
Meanwhile, there has been concerns that Russia may get into trouble due to the low oil prices and whether the China slow-down will lead to the pricking of the property bubble this year. I will be watching the situation closely for these two events which may potentially be much more disastrous than the current Oil slump.
Feel free to send me a beep or any message to clarify on the current market situation.
Xeo
No comments:
Post a Comment