An Endurance Training – Ivan’s Investment Reflection 2020 March

Every month, I publish an investment note called “Ivan’s Reflection”. The purpose is to document my thoughts process so I can review if they are right and wrong in the future. This creates transparency for my clients and people who are interested in my investment management services. It also forces me to be accountable for my investment decisions so I can improve in the future.

Investing is about doing the right thing at the right time, but it is often easy said than done. You can’t escape from the bad headline news: coronavirus which may cause a global pandemic and the fastest stock market plunge in history!

Just when I was about to wrap up the report for this month, the Saudis instigated an Oil-Price clash with Russia, and oil price dropped more than 25%.

You must be thinking, “oh, everything is falling!”

But wait a minute, why falling is not good?

  • A record low Fed interest rate means a higher bond price and potentially higher gold price and real estate price.
  • A slump in oil price means the cheaper cost for the business and should benefit the stock market.

Yes, the investment world is experiencing turbulence, but if you read the news at face value without making some independent judgment, you will draw to wrong conclusions.

If you are new to investing and thinking how much you will lose, the past few weeks’ can feel like a nightmare. But let me tell you, the stock market “crash” is so common in the late-cycle and it happened nearly every year and I run out of the idea of the subject for my blog posts. 😊 Here are what I wrote in recent years

At this moment, you may belong to one of the following camps

  • You may be excited that the investment opportunities have finally come and you can invest more, or
  • You are so scared that you want to sell all your investments.

Let me share with you my thoughts.

Selling during a sharp market correction is always the worst response. The reason is that you will miss some of the best performing days. If the market rebounds sharply, your loss is realized with no chance to recover. The best thing to do is always to pretend that the crash will happen tomorrow and build a resilient portfolio in the first place.

S&P 500 lost is not your loss

Last year, when the S&P 500 stocks were doing well, many clients asked me why I didn’t invest in S&P 500 ETFs or index funds. I have highlighted several times in my 2019 GMC updates, “the US is in heaven, China is in the hell”. So when the market corrects, it was expected to go ugly. Therefore, the GMC portfolio has always adopted a multi-asset, multi-strategies approach.

What I did get wrong was the view that the commodities price would recover given the influx of central bank’s liquidity. But now this is dampened given the price war between Saudis and Russia.

We have seen worse not long ago, but I bet you remember

If you have followed me for long, you may remember this chart in my Jan 2019 updates. At that time, the S&P 500 dropped 25% in the proceeding 3 months’ time. As of now, the S&P 500 is only halfway there.

Fast forward to today, the stock markets have hit multiple new highs and there are a few things that we can observe:

  • The rebound is nearly as fast as the drop.
  • There is an escape point before the price went down further.
  • The market will likely go even higher after a crash, but you have to wait for that to happen.
  • Or if we are lucky enough to escape and re-enter, we may have better returns.

Covid-19 won’t cause the crisis, but the credit market will

Having said that, that doesn’t mean that I have no fear of the market.

If you read my recent updates carefully, you probably understand that I am not worried about the direct “economic impact” of coronavirus that much as I believe they are all priced in.

The thing that really keeps me awake at night is if it flows to the heavily indebted credit market.

The fact that the Fed made an emergency 0.5% rate cut and potentially cut another 0.5% next week shows that they have seen something that we can’t see.

The time that the Saudis chose to slump down the oil price is no coincidence, they want their competitors (from Russian and the US) to die!

I was struggling to figure out what would trigger the next recession and financial crisis for the past 6 months, and now it becomes clearer to me as all that happened in the market started to make sense. Remember,

The market always knows first.

If you read my Feb 2020 updates, I already said the Black Swan event (Covid19) has met the Grey Rhino, which is the ever-escalating US corporate debts. Now the consequence is about to unveil.

My envisioned financial crisis will happen like this:

Oil companies default -> Bank hit by both low profit (due to low rate) and default on non-performing loans -> Bank tightens credit -> US corporate started to default debts -> downward spiral debt crisis

If we learn anything from the 2008 financial crisis, it is the debts that must be defaulted and creditors suffer before the world can resume back to the norm. It is a wealth redistribution process that Wall Street will be the final winner, as always.

If you are interested in understanding more about my investment management services and how the GMC portfolio works, submit your request below for a non-obligatory investment discovery meeting.


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