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2020 was a year nobody saw coming.
COVID-19 pandemic has ravaged the entire world, impacting all of our lives in multiple ways. Global travel came to a standstill, and industries such as tourism, aviation and hospitality were the hardest hit. The financial markets were not spared either, especially during the February/March 2020 crash, where major financial indexes like the S&P 500 declined by more than 30%.
However, to the surprise of many, the financial markets have staged a strong recovery since. Both the S&P 500 and NASDAQ are currently trading higher than its pre-COVID-19 level. Technology giants such as Apple, Amazon and Alphabet (Google) have seen their share prices surged since March 2020.
In fact, one of the best-performing companies on the NASDAQ last year was a Singapore-based company. Sea Limited (NASDAQ: SE) started 2020 with a share price of USD 40.49 and ended the year at USD 199.05 – about 5 times of growth. While a five-time appreciation in share price is great, it’s still lower than what Tesla delivered last year – when its share price skyrocketed by about eight times – from USD 88.60 on 3 January 2020 to USD 705.67 on 31 December 2020.
At the start of this year, we also saw meme stocks such as Gamestop and AMC capturing the attention of Wall Street and the regulators. Within a week, GameStop share price went from USD 39.12 (20 January 2021) to USD 347.51 (27 January 2021).
This leads to a question that some of us may have. Is getting two times, five times or even ten times return on our investments within a year part of #TheNewNormal that we now live in? Has the way the financial market operates fundamentally changed because of COVID-19?
To answer these questions, we are embarking on a new content series call Trading & Investing In #TheNewNormal. In partnership with IG, the world’s no.1 CFD provider (by revenue excluding FX, June 2020), we will be talking to popular financial personalities in Singapore to better understand some of the trends to look out for when trading and investing in a post-COVID-19 world.
First up in our series is Shanison Lin, CEO and Founder of Investing Note, Singapore’s largest social network platform for investors that enables users to share trading and investment ideas with one another.
Timothy Ho (Timothy): The COVID-19 pandemic has changed the way many of us live, from no longer being able to travel overseas to working from home. The financial markets have done exceptionally well in 2020, which is surprising, considering that most developed nations experienced an economic contraction back then. Is this some kind of #TheNewNormal that we are seeing in the financial markets? Should we consider adjusting the way we trade and invest?
Shanison Lin (Shanison): The interesting thing about the financial market is that it is always changing. But this is also what makes it challenging for investors. I don’t think there are definite or permanent winners and losers. You could be a “winner” in 2021 and a “loser” in 2022 and vice versa.
Investors and traders are smart and they follow where the money is. Since March 2020, technology stocks have been receiving lots of attention with huge amounts of fund inflow and tremendous returns generated for their investors, both new and existing. For the past two months, there have been some profits taking from the tech sectors and more money invested into cyclical or recovery stocks. These are stocks that can benefit when the world recovers from COVID-19.
If you have made a lot of money from technology stocks in the past year, it does not mean you will continuously make high returns from them. The market can change quickly so we need to be flexible. Having too much sentimental attachment to your winning stocks isn’t going to be a good thing in that case.
Timothy: The pandemic appears to have badly impacted companies in certain industries such as airlines and hotels, while at the same time, produced big winners in technology and e-commerce companies.
Shanison: On a daily basis, there are thousands of posts and comments on our platform so we get a lot of interesting insights. Let me share two of them.
The first is portfolio diversification. When most investors start investing, we naturally start from our home market because that’s what we are most familiar with. It’s logical that we may invest in companies that we interact with daily (e.g. DBS, Singtel, Sheng Siong)
Over the years, I have observed that there are a fast-growing number of retail investors who are investing or trading in overseas markets especially the US and Hong Kong. Those who started investing in the local market are also investing overseas today. If we think deeper, we don’t want our portfolio to be focused only on one region, which opens us to concentration risk. SGX has quality companies and REITs that provide good dividends. For myself, I actively invest in the US market but also actively use these returns to invest in Singapore for my long-term dividend portfolio.
The second theme is the rise of retail investors’ participation and influence on the financial market. In the past, we tried to approach some listed companies to engage with their retail investment community on Investing Note. However, most of them do not care much. Their reason, to put it bluntly, is that they don’t really worry about what retail investors think. Rather, it’s the financial institutions and the research analysts that most companies care because these are the people that can influence a stock, at least in the past.
Yet, over the past year, retail participation has accelerated and the impact created on the stock market by retail investors is not something that can be simply dismissed anymore. On our platform, we now have more than 15 million monthly page views compared to a few million in the previous year.
I think the retail participation trend is here to stay. The barrier to start investing is so much lower now compared to the past. 10 years ago, when I opened my first brokerage account, I had to head down to the brokerage firm and sign some papers. It took a few days before I could open an account. Today, with the surge of online brokerage firms, you can open an account within minutes and this has driven trading and investing activities by retail traders and investors.
So what does it mean for other retail investors? It probably means that we need to care more about what other investors around us think.
Timothy: Are you seeing a trend where investors and traders are gravitating to just a few selected industries, stocks or even asset classes these days? Is this creating a bubble in specific industries – like technology?
Shanison: The COVID-19 pandemic has brought many new investors into the market at a record speed. The equity market in the US has been breaking new highs and valuation is now at the higher end. Although the fundamentals for technology stocks remain, the quick increase in price is hard to sustain. In fact, there are lots of tech stocks that have retracted recently. I think that is a good thing. If the bull is going to run for a longer period, it needs to take a break.
For now, the market is still holding on well to the uptrend. As a Chartered Market Technician, one of the things I learned is not to predict the market but to react to it. Honestly, nobody knows what is going to happen. Even if we know what will happen, we have no idea when that is going to take place. If the market is still trending upwards, then we don’t need to worry about it, but if it breaks the trend, we need to react fast.
A word of caution though, investors need to know what they are doing. Don’t simply invest because other people are doing so. Always do your own homework.
Timothy: Any particular sectors, industries or asset classes that you are keeping a keen eye on for 2021?
Shanison: I do a lot of active short-term trading, but I also allocate some funds to longer-term investing. In fact, as I grow older and have a family of two kids to worry about, I reduce the percentage of my funds allocated to active trading and put more into passive and long term investing with the aim of building a retirement portfolio for my future.
For active trading, I usually trade stocks, index futures and forex. I focus mostly on the technical trading setup, as well as the risk and reward.
For my long-term portfolio, I follow a core-satellite investing strategy, where I put the core of my portfolio into passive index-tracking ETFs like the STI ETF and HS Tech ETF. In fact, when COVID-19 came, I gradually bought a lot more units of the STI ETF and it has given me good returns so far.
For satellite stocks, I have allocated some money into investing in growth stocks. These are riskier stocks but may also have the potential to deliver high returns. One of them is in the space industry, like space travel and rocket companies. It might sound very far off, especially with the risk of explosion. But I believe the space industry is still in the early stage of development. We don’t know what is going to happen in future, but we got to take some risks for what we believe and hopefully, this leads to good returns. There is always uncertainty about investing. It is just about how you manage the risk.
However, if these satellite stocks don’t perform well for me, it won’t affect the core of my portfolio.
Timothy: At a business level, what are some plans that that Investing Note is embarking on in 2021 as we work towards a post-COVID-19 world?
Shanison: In 2020, we expanded into Malaysia with one of our colleagues (who is a Malaysian) heading back to start our Malaysia expansion right before the SG-MY border closed. Now that I think back to it, if we delay even one week, our plan would have been interrupted.
COVID-19 has sped up the transformation for many businesses including ours. Working from home has become the norm and it has given us the ability to scale our business across the countries without needing to be physically present with one another. We have added four new team members over the past year but I have yet to meet them face-to-face. Even then, we have been working closely as a team without feeling distant.
With this, we are working to continue accelerating our expansion in Malaysia and we hope to build the biggest stock investing community in Malaysia soon.
Timothy: For people who are new to trading and investing and just got started in 2020 or 2021, what is some advice that you will give them before they put their money into the financial markets to earn a good return?
Shanison: I have three pieces of advice.
Manage your risk and start small. I would say that this is the most important advice when you first start. Ask yourself what is your purpose of investing? Let’s say your purpose is to grow your savings for marriage and down-payment for your first house. In this case, even if you are open to taking risk, you don’t want to take too much risk for that portfolio. High return generally means high risk. You don’t want to risk your marriage for that.
Age matters a lot to how much risk you can take. If you start investing at age 20, you can probably take on more risk as compared to starting your investment journey at age 50. Like me, as I get older, I start to gradually reduce the amount of risk exposure that I face. I would allocate some of my portfolio to lower-risk products like bonds and also buy some dividend-paying stocks, index-tracking ETF and reduce the portion of my portfolio that is set aside for active trading.
Once you define that, you need to manage your risk well. If you are just starting out, I would recommend starting your investment journey small. You need to get your hands dirty to understand more about the markets and yourself. But you can gradually increase the investment amount along the way.
The second advice is to always know what you are doing. The financial markets these days have given investors a lot of choices, and investments are getting more sophisticated. It is important to know what you are doing. Don’t risk your money by simply following what others are doing. Always do your own research and make sure that you understand your own investing thesis when you invest.
Two months ago, Elon Musk tweeted “Use Signal”, and a lot of retail investors rushed to buy a stock called Signal Advance. This drove the stock to rally from 40 cents to as high as 70 dollars in three days. That is 175 times in return! Now the price is back to $2. If you have bought during the rally or near the peak, you probably want to pray for Elon Musk to tweet on Signal again.
So the lesson is that you must really know what you are doing.
Lastly, focus on consistency. I believe investing in the market isn’t to get rich quickly but to make money grow gradually for us. Most of us here know about the stock GameStop. The stock price was about $4 half a year ago and became almost $500 during its peak in January. If you have put $10k 6 months ago, you will have $1 million during the peak. I know these kinds of stories get everyone excited. Yet, during that crazy period, I saw some young people posted in Reddit saying “I have dumped all the money I have, let’s go”. I am worried for them. Some of the lucky ones did make tons of money from that, but those who bought at the peak were not that lucky.
Investing & Trading During #TheNewNormal Comes With Both Opportunities & Risk
From our conversation with Shanison, it’s quite apparent that there are new investors and traders that have started putting their money into the financial markets in 2020. And it seems that the way people invest and trade have shifted slightly – with more willing to take on higher risk in exchange for high returns.
As shared by Shanison, one of the key themes that we need to watch for is the rise of retail investors’ participation and influence on the financial market. As an investment community designed for investors and traders, Investing Note is able to witness first-hand how online interaction can lead to higher engagement and greater interest in specific asset classes, sectors and individual stocks. For traders, another community that you can consider being part of is the IG Community, which is designed for like-minded traders to share trading ideas and discuss market opportunities. Besides the IG forum, there are also blogs and live shows that you can gather trading ideas from.
If you are like Shanison, with a part of your portfolio allocated for shorter-term active trading, you may wish to trade using CFDs through a brokerage firm like IG. With IG, you can trade more than 17,000 markets on a range of instruments from equities, indices, forex and commodities. Of course, these asset classes come with their own unique sets of characteristics and risks so it’s essential that you understand what you are investing in. You can also choose to open an IG demo account first to practise trading and familiarise yourself with the platform before you proceed to open a live IG account.
As we continue trading and investing in the financial markets in 2021, we should also be cautious of the current uptrend shifting. One advice that Shanison gave is to focus less on predicting the future, but more on how to react quickly to it. With the current uncertainty in the financial markets, we must also learn to cope with heightened volatility and use it to our advantage. To find out more, you can download this free e-book on volatility that is written by Bloomberg in partnership with IG.
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