Today, Uncle8888 did a revised stress test assuming Depression 2.0 is coming and will hit his investment portfolio in SGX badly and even lower than GFC and SARS period.
Currently; he has already deployed about 30% of his war chest!
Stress test result for Depression 2.0 for fully deployed war chest
The stress test result is not too scary since it is still slightly better than GFC. During GFC, he was caught sleeping during 2007 Bull Run without focusing on his money management skill! This time; he has been preparing himself to be slaughtered by Great Bear and the pain can be eased by Panadols!
The time is different!
The difference is in cash flow!
During GFC, Market down. Negative cash flow. KNS!
This time, Market down. Positive cash flow!
Got Panadols! No scare!
3M's in investing across market cycles of 11 years since 1987 is ...
Method, Mind and Money Management
Posts
Beware of being highly leveraged in continuous down market without the visibility of market bottom and it will finally force us into negative cash flow. This was what happened to me! Don't come to bear market to do leveraged yield for cash flow for long only retail investors. Are we an average retail investor or sophisticated HNW investor? Our pain on paper financial losses is totally different.
ReplyDeleteHmmm when times are good. Who cares about borrowing with margin? Kan kan Lai.
DeleteLeverage is all about risks management. No？
Uncle temperament.
ReplyDeleteHumility is the best lesson for people who are " too smart”.
Such times are a test to their “ invincibility"
Uncle8888,
ReplyDeleteNo need Depression 2.0 ... even just a -30% in STI already killed a lot of leveraged bets.
A lot of risk parity strategies got caught in the mass liquidation dash for cash (USD) ... Ray Dalio, H2O etc.
Got 1 prominent trainer publicly closed his leveraged portfolios & having to update training materials! At least he's open about it & alerted his students to take action. But I suspect a few higher risk-taking students kena burnt liao.
What's that about the 3 L's that Charlie said?? Liquor, ladies ... and leverage?
I shake my head and pity those trainees who cannot afford to lose their money by closing their margin account.
DeleteThe prominent trainer finally realized that without the weight of a margin account, he is actually much happier than before COVID-19. Depending on broker's margin account for leveraged yield to FIRE is greed!
DeleteThe trainer got capacity in terms of capital and mental, not sure about the students though.
DeleteFor income portfolio where one needs to have holding power, I personally won't use leverage. With leverage, one can be forced to sell at the worst possible time. It just happened last week to people holding leveraged REIT portfolio. It's really bad timing given that REITs had their best year in 2019. After a good year, many people will crowd into that asset class. This means a maximum number of people will be hit.
DeleteI hope there aren't many retirees using leverage in their income portfolio. Without a job, it is hard for them to recover from the blow and the financial contagion will spread to their children.
Last GFC; I also heard the same Depression 2.0 coming!
ReplyDeleteDo not think this is Depression 2.0 yet. In the history of mankind, seldom when you can have a Plague that cause a crash that last for very long.
ReplyDeleteI believe that God allows Plague to take place because of human sins. So eventually due to the kindness and goodness of God, plague will be gone soon.
What will lead to Depression is mainly the greed and the evilness of mankind.
So I felt that Covid will cause more debts globally built up. And the whole world will be printing money! The market ay rush higher again after the Covid, and then up to some point when the debt hits no more room to grow, then a BIG CRASH with hyperinflation, and everyone seeing the currency they hold become worthless!
That perhaps will be the next Crash or the next next one etc. So I believe we (human race) will continue to rally in the stock stemming from our greed after this Covid-19.
Just my feel. Wrong also never mind! :-)
ReplyDeleteThe relaxation of gold standard is printing money. That was before the Great depression! I wrote 3 articles on history of Gold. Part two below explains.
Ray Dalio economic machine n principles of economics which i also read explains too.
http://www.rolfsuey.com/2016/05/gold-and-silver-peek-into-history-to.html?m=1
http://www.rolfsuey.com/2016/03/ray-dalios-exceptional-insight.html?m=1
I can explain steps bu steps but quite hard to explain in writing
I love history, because the further away back you look, the farther in front you can see. To me, wisdom comes from reading the Bible and making notes and summary and remembering as much as I can the bible. Reciting verses also help me alot in my daily lives. Bible is a book of thousands of years and it gives me Holistic view of looking at this universe.
DeleteThat is why while I disappear for the last few years in blogosphere, I had reading bible and writing hundreds of articles/summary from the bible and share it within whatsapp group to all those who heard my testimony. I dont go to any building church, and does not belong to any building church. Pastors in this world nowadays are too commercialised and have too little knowledge I felt. Not to undermine them, but it is the truth!
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ReplyDeleteCauses: US too rich bcos they produce lots of things export to Europe who is engage in ww1.
ReplyDeleteEurope abandon gold standard..
All the gold flow to US. Factory in US booming! People confidence high and overspend. Stock market rally. Installment plan started.
Everyone bought electrical appliance and cars as if it’s free using installments and future money. Debts burst. Stock crash. Banks run!
Big Deflation. or Great depression it is called. Then government relax gold standard. Indirectly printing money....
German mark loses value Hyperinflation...
Ok, as for Path 2: everyone has different path 2.
ReplyDeleteFor me, paying down my property is key. Although I have 2 property, but my condo which was bought 10 years ago is already pay down for many many hundreds of K. Debt is merely less than 30% of market price, which i am super comfortable with. Target paying down my condo in next few years!
I sold off big big part of my portfolio in 2016 because of focus in reading the bible, believing on a crash that only takes 3-4 years later. Aside from the low property debt, I also accumulate quite a sizeable portfolio of precious metals and cash of definitely more than 1/2 mil and more. So guess, the patience paid off, except I have too much silver, which is very depressed now. But believe Silver can peak > $30 / oz within next 1-2 yrs.
So I reckon, Path 2 for me is this:
Buy stocks sparingly now maybe few K per month. But be patient bcos I believe it will take > 1yr to go down / up and down more.
Accumulate gold sparingly, maybe also few K per month. Believed it may hit $1000/ oz! May sell some now to cash out profits.
Build a brand new portfolio of Reits, some Blue chips. Part is using SRS which will only cash out 20 yrs later. Mainly STI ETF mainly or Keppel DC Data reit. Buy Oil company such as Exxon, Chevron, Shell. Choose one.
Cannot finish using the cash, because economy will be bad. So keep 1 yr of expenses at least.
If gold and silver peak within next 1-2 yrs, I will sell and buy a third property! Using my second property rental to pay my third property!