I started my blog in 2016 and named it Buy After Crash, because that was how I started my investing journey around the time of the GFC.
During GFC and again in 2016 and again during COVID 2020, STI was also under 3,000 due to a 'crash', and as I documented in my blog, I was happy to buy STI as long as it was under 3,000.
Recently, in the influenza sphere, there appears to be some influenzas creating a "fake dispute" about buying after crash strategy. I don't follow these influenzas so I depend on blogs I actually read to keep me updated:
Finance Opti: Lump Sum vs. DCA vs. Crash Buying??
Since my blog is named Buy After Crash, I think I should weigh in with my strategy. Its so simple there is no need for multiple long-form youtube videos to describe it. I guess thats why you need to create a "disagreement" so that there is material for a youtube long-form video.
The starting point for me is to have the correct Asset Allocation that matches your risk profile. As a simplification, we could divide assets into equities and cash/near-cash/investment grade fixed income. It could be 50/50, 70/30 or 100/0. I think I'm around 80/20 or higher.
With the correct asset allocation, you sleep well at night because your portfolio has a certain amount of risk that is aligned with your risk profile. Assuming your risk profile remains constant, portfolio risk could go up or down.
When markets crash and equities become cheaper, I feel that the risk of holding more equities goes down
(1) From a valuation perspective. There is more upside from undervalued stocks.
(2) From a historical perspective, as the long term market trend is up.
This means that even if my risk profile is the same, I should be willing to buy more equities during a crash, over and above mere 'rebalancing.' So every time the market corrects, I tap on my cash/near-cash/fixed income portfolio of my portfolio to buy more equities.
If you are 50/50 or 80/20, it's simple to tap on your spare cash to buy equities. If you are 100/0, this means you have to use leverage/margin to buy more equities, which has a cost and the market may be irrational for longer than you are solvent. So crash buying when you have a 100/0 allocation is still possible, but perhaps more difficult.
I wonder if those influenzas who like to discuss crash buying have actually showed how they invested/traded during various crashes. My blog documents what I did during the 2016 and 2020 crashes (and also Trump's liberation day not-really-a-crash). This is for my reference so I can learn how to improve. Like I posted before, I identified one weakness in buying only during the downward phase of the crash and not buying during the early recovery phase (because of the fear of dead cat bounce). But Historically, prices during dead cat bounces were still attractive and you would have still made money buying during dead cat bounces.
No comments:
Post a Comment