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Doom and Gloom versus the Wisdom of Crowds

The start of 2016 has seen stock markets around the world being afflicted due to a combination of factors. The slowing down of China’s economy, coupled with gradually rising interest rates from the US Federal Reserve raising its interest rates has resulted in the stock markets plunging from previous levels.

Since I started investing in 2003 and since starting work in 1995, I have gone through several market boom and bust cycles. The ones that impacted me the most from the investing perspective was the global financial crisis in 2008. That was the one where I was invested in the market, had a mortgage and car loans and could feel the strain of seeing one’s portfolio value declining in five digit figures.

Fast forward present day 2016 almost 8 years since the last major market crisis. I am now in a better position to weather this partly because I have cleared off my mortgage as well as car loan, i.e. I am debt-free now and hence do not feel the financial strain or tightness in liquidity. As a salaryman, I have continued to be in employment and managed to climb up the corporate ladder in small steps and am at a higher income bracket as compared to 8 years ago. One surprising thing is that as my daughter (who was born in 2008) became older, household expenses declined as childcare and baby related costs can be quite exorbitant in Singapore and now then she is in primary school, household expenses have declined in relative and absolute terms.

After the 2008 global financial crisis, the following measures have helped me become more robust to market cycles:

  1. Keep xx% in cash and cash equivalents as a buffer
  2. Focus on beating fixed deposits and inflation but not take unnecessary big risks
  3. Reduce trading activity and focus on acquisition of blue-chips and hold for dividends
  4. Diversify the portfolio amongst equities, fixed income and cash
    • Fixed income: 22% (Corporate bonds and Government Bonds, Savings Bond)
    • Equities: 46% (Blue-chips)
    • Cash and cash equivalents: 32%

Thus, even when I see again five digit market to market paper losses when I update my worksheets on my investment portfolio, I am less worried and frustrated as it does not affect the quality of my daily life.

In terms of being financially free, I still have not achieved it but I have come to realise that it is the journey and not the destination that is fulfilling. At the same time, I realise the paradox of life that we need work more than work needs us. For those who find my comment puzzling, go read “Your Money or Your Life” by Vicki Robin and Joe Dominguez for that insight.

For those who feel upset, angry or worried about the market, I have gone through that in 2008 as well and know that it is not easy to be riding the roller-coaster hurtling down towards the scary parts of the ride. But history tells us that this is another cycle the markets go through and there will be brighter days ahead but just not for the time being.

Be well and prosper.

One thought on “Doom and Gloom versus the Wisdom of Crowds

  1. Hi Panzer,

    It’s been quite a while since I last commented your blog. Really nice to have you restarted your blog but I am used to your earlier format.

    I think you have matured in your perspective regarding financially free. Clueless investing and pursuing wealth at all costs to me is madness and meaningless.

    Yes, I started investing in 2008 and went through the roller coaster ride and now I think I am back to square one. This will be my second cycle of scarily ride in the equity market. Nevertheless, this is unpreventable and I am not shaken.

    All the best to you and your beloved daughter. Time passes fast and now she has started her primary school education. With your supervision, I believe she will excel in her studies.

    Wishing you all a blessed Lunar New Year!

    In prayers,
    Everlearning

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