Are we prepared for Black Swan?

As the events unfolded on Thursday night and Friday in the stock market, I couldn’t help but recall these 2 articles that I read earlier this week by STE (about patience) and Brian of 3Fs (about holding cash). How timely and apt these articles were. I also reflected on my most recent post (about being prepared for 2H2018). You can find the links to all these articles at the bottom of this post.

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I do not think anyone has anticipated the move from our government to further tighten the cooling measures on property purchases, announced at 6pm Thursday. It came swift, sudden and abrupt. The chaos at the showflats and frantic booking of units before the clock struck midnight and the dramatic drop in share prices of the property companies and the major 3 banks the next day were testimony of the element of surprise that the government has achieved. You can read about the govt measures in an article from Investment Moat in the reference section below.

But were all these necessary? One, the further tightening measures and two, the timing of it.

Well, for the former, govt said that property price has risen by 10% from last year and they are very concerned. MAS chief even used the word “euphoria” to describe the current market. But honestly I don’t feel it leh … maybe I wasn’t in the market looking for a property or selling one … but I did go to 2 showflats near my place to see see look look and enjoy the aircon. The showflats looked busy no doubt but from what I gathered, the sales were not particularly “euphoria”. It was obvious to me that there were more people seeing than buying. By the way, the share prices of the property companies have been coming down in the last few months, along with the decline of STI. It also doesn’t gel with the story that the property market is “toppish”.

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As to the latter, why Thursday night? So that no one will earn an advantage? Why not after market close on Friday and allow people to think through their options and make decision over the weekend? Is it because the news is already leaking out and the govt is worried of certain groups of people benefiting from the news ahead of the rest? Or is it because more people can benefit from the “tax saving” if the “window of opportunity” is kept longer? Whatever the reason it might be.  such surprises jolted the market badly – the steep drop of even the big cap/blue chip developers like City Development (down 16%), UOL (down 14%) and Capitaland (down 6%) was not pleasant. Even the banks – DBS, OCBC and UOB were not spared, dropping 2-3%. The general market mood was gloomy.

Anyway, these are all water under the bridge now. The questions that every one of us (long-term investors) should ask are:

  • Were we prepared for this “black swan” event when it happened?
  • Had we done sufficient research to know what wasa reasonable price to enter without losing sleep even if the share prices decline further?
  • Did we have the courage to enter when there was widespread panic and selling?
  • And very importantly, did we have enough cash to exploit this “opportunity”?

I hope you answer is Yes to all of the above and you had picked up something for yourself last Friday … either an investment, a personal reflection or a lesson.

Every Crisis is also an Opportunity and that “opportunity” doesn’t necessary mean in terms of monetary, it can also be a greater sense of self-awareness, better understanding of own risk tolerance and gaining valuable lessons to fight and win the battles tomorrow.

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Opportunities are there for us to grab and I hope you grab yours yesterday too.

Going by how things are going, I don’t think this is the only black swan, more may come in the remaining months of this year. Hang on to the ride – it can be rough, turbulent and ruthless.

Regards,

warriortan

P.S. in my personal opinion, Capitaland and Frasers Property offer good value at current price. CDL, UOL, Ho Bee, OUE and Wheelock at current price are good and strong stocks to consider accumulating for the long term. Good luck!

References:

  1. By STE: Patience Is Your Biggest Investment Asset
  2. By Brian of (3Fs):  “Hold On To Cash For Crash” Theory
  3. My most recent post : Alas, a Depressing 1H 2018 But some Food for Thoughts on what we can do for 2H
  4. Investment Moat: Swift Actions By the Government to Raise ABSD and Loan to Value Limits After Some Tough Talk by MAS and DBS Chiefs
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