Trials and Tribulations: Coronavirus Market Correction

With the drama that I had experienced most recently with my only two hot picks in individual stocks, CLH being on its continued trading halt which has now extended until mid March and UNV being subject to a hostile takeover bid from TER, I really thought that I had seen enough drama to last a year. (ᗒᗩᗕ)

That is, until the markets this week undertook one of the biggest corrections in recent times with the index going down 9.8%, taking $210bn from the markets   ᕕʕ •ₒ• ʔ୨. As someone who doesn't buy shorts or puts, obviously I took on a fair amount of collateral damage.

As someone who tried to go into this journey with a certain amount of mental preparation, I too was caught off guard as to my personal responses to this black swan event. Early on in the week, my ボーイフレンド and I spent most of it indulging ourselves in schadenfreude when we watched everyone around us and in online forums lose their minds over the daily 3% drops Σ(･ω･ﾉ)ﾉ！ . It had gotten so bad that even my colleague Mr D was finally pushed over the edge and cashed out his holdings on Thursday and dived in on inverted indexes (BBUS and BBOZ), cashing out at the lowest point, thereby crystallizing his losses before buying into the already relatively higher inverted index. I can only hope that he doesn't crash and burn too hard that he can no longer be redeemed.

As for myself, I had high hopes that with my mental preparation, I would be able to separate myself from the numbers as the fell. During the start of the week, I could definitely say that I managed to do so with relative capability. Having said that, by the end when it neared a 10% drop, I too succumbed to a slight bout of sadness when I realised that half a years' worth of my savings was gone on the papers. When you consider than in real terms of how many bleary eyed mornings I had to force myself out of bed to get onto the bus and deal with stupid people at work, it did make me fairly sad. Despite my disappointment in myself for having feelings when I expected none (◞ ‸ ◟ㆀ), I can still gladly say that I did not once have my finger on the "sell" button, which is testament at least to a level of discipline and rationality.

So to drown our sorrows for losing that much on the markets this week, at least we could still enjoy two minute noodles and tendies to commemorate our week of losses. As for what I will be doing next week? I will be increasing my DCA and putting my March funds into WGB. For those who are wondering, I couldn't convince Mr A to go buy in the dip, but at least he also stayed the course and is continuing his regular investment ʕ´•ᴥ•`ʔσ”.

An interesting note though, as an ironic silver lining to this week, the trading halt from CLH happened to cushion my fall a bit, cos 0% is still better than being negative. 

By 小福

Trials and Tribulations: CLH Trading Halt

Having only started my portfolio a mere three months ago, I had expected a fairly uneventful first few months with most of the excitement in my life attained from second hand thrills in watching what goes on in Mr D’s portfolio as well as the shenanigans on r/wallstreetbets⊙﹏⊙∥. The vast majority of what I personally hold are of course a collection of conservative and uninspiring ETFs, which of course leads to the conclusion that a minority of my holdings are comprised of individual stock picks (≧ω≦)/.

I had initially wanted to write a brief analysis post on my first ever hot pick, Collection House (ASX.CLH), but whilst I was still formulating what aspects to cover, an interesting development occurred in the meantime in the form of a Trading Halt to CLH. Σ(っ °Д °;)っ

As someone who has long been fairly risk adverse, I thought that I would be moderately stressed out by the uncertainties pertaining to the trading halt. With Mr D having mentioned to me a number of times that he believed CLH to be a textbook example of a value trap that he believes will slowly drop in price to eventual oblivion, this was largely founded upon a lack of understanding of the industry that CLH operates in as well as assumptions and speculations on management which appear to be largely unfounded based on my preliminary research (。・`ω´・).  Contrary to my apprehension though, since being notified of this last Friday, my mood has been relatively uneventful despite the unpredictability in what may happen when the Trading Halt either lifts on Tuesday or gets extended. For now, we have no information as to whether or not to expect good or bad news from the halt.

Reflecting on this, I would have to attribute my serenity to the copious amounts of time my ボーイフレンド  and I spent  delving through years of annual reports and financial reports of not only CLH but also its competitors, assessing the potential risks and threats to the business before deciding to put our hard earned money into the company(•̀へ •́ ╮ ). Having been satisfied that it was a reasonable purchase for good value with a solid history of dividend yield and potential for future growth meant that even when a Trading Halt was placed on the shares, I found little to shake my conviction in my decision making.

In short, if I am right in my reasoning of the outcome, there is little to be concerned about come the announcement tomorrow and if I happen to be wrong, it would be a most interesting albeit costly lesson to have learned. Will provide an update as the situation resolves. ٩(๑`^´๑)۶

By 小福

Random Musings: On the GFC, Trading Cards and Maplestory

Whilst I was reading A Crisis of Beliefs, one of the things that really stuck with me was the fundamentals of what causes a financial meltdown. Reflecting on my relative inexperience in life, it occurred to me that similar situations had happened to me before but in a different context (｡T ω T｡). Speaking to my ボーイフレンド , he too provided a story pertaining to his similar experiences which basically summarizes the GFC perfectly (｡•́︿•̀｡) . I will try to encapsulate them below.

In my childhood, I used to be a huge fan of Sailor Moon trading cards, subsequently amassing a large collection of cards which were my pride and joy. At some point, I met up with a distant cousin over a meal, and as all young children are prone to do, I showed her my stash of cards. At this point, she told me that she had a hot tip that a certain card that she held was worth $50 (a fortune to a seven year old), which was more than enough to drastically multiply my collection, all for a discounted family rate of my best card凸( ` ﾛ ´ )凸. As all dumb seven year olds would do when presented with this offer, I jumped on it. Only several days after the fact when I asked around to find a way to sell off the card to expand my collection was I informed by my parents that what I was given was a plain piece of cardboardヽ(`⌒´メ)ノ . 

My ボーイフレンド 's experience was similar but different. Back in the early days of the highly popular MMORPG Maplestory, he was sold an enhancement scroll for $1.5m gold on the premise that he was getting a discount from the regular $2m market value. Again, as children are oft to do, he made the purchase. Luckily for him, he onsold it to another unsuspecting buyer for a profit, only to realise later that these scrolls could be purchased at an unlimited quantity from the game itself for the small sum of $34k. ¯\_(ツ)_/¯

In essence, the economy as we know it is a giant marketplace of people conducting individual trades every single day. For every transaction there is a seller, a buyer and an agreed price. For market crashes to happen, the players often get so hyped up in the perceived value of an asset completely deviates from the true value. Those who are lucky can pass it on to another buyer, those who aren't lucky when the ball drops are left with a piece of cardboard (`皿´＃).

By 小福

Book Review: A Crisis of Beliefs - Nicola Gennaioli and Andrei Shleifer

One of the first concerns I had to contend with before putting a considerable portion of my life savings into the stock market was the potential for market downturns. Having lived through the GFC, I was keen to have an understanding of the factors that lead to the last market crash, which is why "A Crisis of Beliefs" by Nicola Gennaioli and Andrei Shleifer caught my eye, so I had to check it out (✧ω✧) .

Basically the book creates a fairly complex mathematical model demonstrating how a failure to consider the downside risk coupled with financial fragility resulted in the crash that was the GFC. Although I found the book to be fairly technically advanced in its concepts and  formulas, I did appreciate the fundamental concepts it was based upon though.

In short, failure to consider downside risk means that the majority of the players in the market before the crash didn't give enough due consideration to what would happen in the worst case scenario (⇀‸↼‶). Tying it back to the principles of value investing, it would mean that you should always be certain of the true value of what you are buying rather than just joining in on mindless hype. As an analogy, say you bought shares of a farm, even if the paper value of the farm crashed to zero, you would still hold a (hopefully) revenue generating asset.

The second factor that was covered in the book related to financial fragility, specifically pertaining to how interconnected the components of the market are and how the failure to consider downside risk can lead to a death spiral of credit contraction, loss of liquidity and eventual crash (`ー´) .

Although I felt a little out of my depth reading this book, I found the basic gist of it easy enough to understand, and it will probably be a book that I return to when I am a bit more advanced in my studies.

By 小福