2018 was a tough year for investors. Almost all the investments markets (stocks, bonds and commodities) are in a bearish mode. US-China Trade War is not only a war between US and China, it affects all of us.
We haven’t seen this for a long time, not since the 2015 China Stockmarket crash, which triggered global stock sell-off. That is why the topics of the debt bubble, recession are repeatedly reported in the news.
On 8 December 2018, A truce was announced by US and China, the global market rallied, but it was immediately halted after the news of Hua Wei CFO Meng Wanzhou’s arrestment by US authority broke out.
If you are an investor, what should you do now? Should you be optimistic or pessimistic?
Don’t Fall into Retail Investors’ Trap
I have a personal indicator of where the market is turning, that is from my clients. When more of my clients “check in” and ask the performance of the portfolio, it is a sign that retail investors are out of the market. Why?
A typical investor’s behaviour is as the chart below. Generally, when the markets are near the top, retail investors get excited and want to buy more. But when the market is bottomed, retail investors are mostly on the defensive side.
And I can testify that with all the recent crashes.
BitCoin Bubble: at the end of 2017, many people asked me how to buy “Bitcoins”, and boom, the Bitcoin hit the record high in December 2017 and collapsed and lost 80% in the past year.
Tech Bubble: At the beginning of 2018, Fintech and Robots dominated the global headlines. I have numerous conversations with friends and clients about the overvaluation of Apple, Facebook, Tencent, Alibaba, Tesla, etc. I told them that they are late in the game, but few are convinced. Boom, more than 20% was wiped out in these “future” technology stocks.
US Stock Market Crash: In the mid of 2018, I was again asked by many people how to buy “US Stocks”, and boom, the S&P 500 hit record high in October and it collapsed 8% as of today.
But now, I started to get enquiries of if they should stop investing or reduce their monthly contribution. To me, that is a good sign. Think about it, if you lose 10% investment, you probably want to average down, or monitor, or do something about your investment. But if you lost more than 30%, you probably will just leave it there and “hope” it will recover.
I explained before how money flow affects the market direction rather than the news. Which direction do you think the market will go when all the sellers are out of the market and buyers are coming in.
Volatility Is the New Norm
In the past few days, the market swung up and down 1% to 3%. That makes a lot of investors unsettled. We need to understand that the episodic volatility is the norm for markets. What happened in 2017 was a historical exception.
In an average year, investors experienced more than 60 days of 1%+S&P 500 price moves, versus the 8 such days in 2017.
US-China Truce is a Temporary Stop, Not The End of the War
China has been tougher than what Donald Trump imagined. It is probably the toughest financial fight they encounter in the past 100 years. The US always had their way to control the world through their financial system. The gold standard, the USD Oil relationship, the Quantitative Easing. Nobody in the world had the financial muscle to defy the US in the past, but China is here to strike the balance.
When the US stock market is good, Trump can be hard on the trade war. As soon as the market weakens (like now), he is forced to be softer. The possible things may happen in 2019
- The pace of rate hike will slow down or even reverse
- More “unconventional” off-the-market tactics will be used. (such as what we have mentioned earlier)
- The world will be more divided and forced to choose a side (take a closer look out to countries like Korea, Japan and even Europe)
Focus on Preserving Wealth, but Refrain from Leaving the Market
At the beginning I told you that the market today is like what it is in 2015, You can review this article written by me in 2015 how we should position our investment portfolio in this kind of markets.
“It is dangerous taking a position; it is equally dangerous doing nothing.”
Leave Your Ammo for the Right Asset Classes
If you look at the performance of GMC portfolio, you can see it is still in good shape despite all the lost in Asian markets this year. Why? Because I continued adopting a systematic approach to investing.
If you are an Asian investor, you have two choices.
- Continue to buy the US investment theories and believe all down markets are good buying opportunities
- Shift your investment ammo to the asset classes that have safety margin and can generate a positive return for you.
I want to show you this long-term valuation chart of Asia Stock Market. It is approaching the Global Financial Crisis level.
My outrageous belief for 2019 is that the source of investment return will be from Asia. But before we jump into the conclusion and discuss the investment strategy, we should let the market leads our way.
I told you that a lot of investment success stories are not repeatable.
The US-China 90 days truce is a good opportunity for investors to relax and reflect your investment strategies and assumptions.
If you are keen to know more about GMC Investment Portfolio, you can submit your request using the form below for a non-obligatory investment discovery meeting. You can also leave your comment below if you have any question.
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