Year of Rollercoaster with Opportunities Ahead

It has been a highly volatile first half for many investors out there, and many will agree “rollercoaster” is an apt description for the equities market. To sum it up, the half-year performance can be perceived in many ways: “catastrophic”, “volatile” or “depressing”.

My portfolio is down by over 15%, with $NVIDIA Corp(NVDA)$ taking the biggest hit as investors are concerned about the prospects of growth stocks. I am invested in both US and SG market, with my portfolio diversified over technology, infrastructure, transportation, consumables etc.

Madness of Mobs in this Volatility

With the ongoing geopolitical conflict, persistently high inflation at historical highs hitting all facets of daily life, looming recession fears and rising interest rates, it is inevitable that many retail investors are concerned on equities market having taken such a heavy hit. The current macroeconomic situation may have recovered significantly from the pandemic, but the overly loose monetary policy have also

The S&P 500 and Nasdaq, two of the most popular indices, are officially in a bear market. Stocks that were pandemic darlings during the Covid-19 period are down by over 70%, which includes DocuSign$Docusign(DOCU)$, $PayPal(PYPL)$, Roku etc.

One can also see negative news plastered all over social media as financial institutions and many influential investors repeatedly emphasising the increasing risks of recessions and further downside to the stock market. As humans, most of us would have conformed and this has triggered many sell-offs (panic for some) in recent weeks. The panic and fear are akin to a virus that is highly contagious, which its end result is extreme volatility.

The worry and anxiety can set off a chain reaction, as more and more people will jump out of the market and trigger a further sell-off. This herd mentality will only make it worse as losses are being realised even for fundamentally strong companies.

Don’t Lose Sight of the Opportunity Amid the Fears

One may argue that the possibility of a recession may trigger further sell-off, resulting in high losses as companies take a hard hit on their profits. That’s true, but one must also be cognisant that not all companies or industries will share the same fate. It is important that we maintain a broader and more long term perspective (unless you are a day trader then this may not be as relevant to you).

Instead of realising your losses, one can look at the situation more positively as it presents an opportunity for investors to pick fundamentally strong companies at a discount. Companies with strong balance sheet, good operating cash flow and sound business model will continue to thrive and survive a recession. The best way is to choose some of these potential winners, stay invested and ride the market back to recovery.

Staying Invested and Diversification as My Game Plan

I do not have a crystal ball that can accurately predict the stock prices and when it will bottom out. Instead of trying to time the market, I will continue to remain invested on good companies based into their economic moat, fundamentals and track records. It is pertinent to note that non-profitable companies with high debt are going to come under immense pressure, and sizing your investment for such speculative stocks will be critical under a high interest rate or recessionary environment.

As Warren Buffet opines “Be fearful when others are greedy, and be greedy when others are fearful”, I will continue to stay on course for my diversification plan as the contagious fear continues to ravage the market. Besides putting in more positions for defensive stocks such as consumer staples and infrastructure, I will also look at industries that will remain resilient or shine during an economic recovery, for example companies that offer cloud or cybersecurity services.

Stay strong and may your game plan tide you through this period! [Victory] 

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