Risk Management is a Large Part of Long Term Profitability

This is a personal sharing of what I am doing. You have to make your own decisions because different people have different needs, can tolerate different volatilities etc.

The technical indicators turned bearish on 1 Mar 2020. It indicates a top to bottom drawdown of perhaps 20 - 35%. The S&P500 is already down 19%, 1% away from an "official bear".

A 35% top to bottom trough will mean that the S&P500, from the peak of 3394 in Feb 2020, may fall another 21% to 2206. It will also mean that the Cyclically Adjusted PE ratio, which was 27x at the peak, will reach a far more reasonable 20x. There will be tremendous bargains to be made. The recovery at the end of a big fall will mean big returns.

The most important thing in investing is not just to predict where the stock markets will go, but what to do if you are wrong with your views.

I chose to "stop out" most of my equity positions in the first week of March, put on some inverse ETFs and put options, hold some cash. From 90% equities, 5% precious metals, 5% cash in Jan 2020, to 50% long equities, 40% cash, 10% short equities today. This is how nimble you have to be to survive a sudden fall and you live to fight another day.

There are different styles to investing and some people just buy and hold good companies forever, like Warren Buffett holds Coca Cola through thick and thin, never to look at the market prices. Eventually, Apple, Tencent, Microsoft, Baba, Johnson & Johnson, McDonalds, Yum etc will probably prevail and rise to new highs if you can stick through them.

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