Setbacks are a good time to slow down, reassess our lives, and to plan better for the future.
It could be a health issue forcing us to take a break from work and reconsider what is truly important in our lives. A retrenchment that leads us to rethink what we want to do next for our careers. Or, in the case of the financial market, a bad year for our investment portfolio makes us review whether our investment approach is right.
I don’t need to remind you (your investment dashboard would already tell you) that 2022 has been a poor year for the stock market unless you have been investing only in the Straits Times Index (STI). The S&P 500 (-15%), Nasdaq-100 (-23%) and Hang Seng Index (-16%) are all down from the start of the year.
If you invest in individual stocks such as Alibaba (-22%) and Tencent (-32%) or Sea (-71%), your losses may be even larger.
Markets Go Up And Down All The Time
“Only when the tide goes out do you discover who’s been swimming naked” is an often cited Warren Buffett quote. It’s overused but very important, especially for new investors.
The idea is simple. When the financial markets are doing well during a bull market, everyone looks like an expert. In fact, it’s the people who take the most risks by trading in high-growth companies or are using leverage in their trades that would likely see the biggest gains, leading them to think they are the most competent investor and trader.
Beginners are excited because they think they stumbled on an edge in the market and now believe they can make lots of money outside their day job.
Ironically, this is the worst thing that can happen to them. Losing (a little) money at the start of your investment and trading journey is good because it teaches you to be cautious in your trades. Making money easily at the start has the opposite effect. It tricks you into thinking you are good at investing and trading when you are not.
Just look at what happened to cryptocurrency traders this year.
Participate & Learn Index Trading Via DLCs
If you want to learn how to invest and trade well, especially during this volatile period that we are at in financial markets, index trading via Daily Leverage Certificates (DLCs) is one way of learning more.
Introduced to the Singapore Exchange (SGX) by Societe Generale, DLCs are a type of derivative that offers investors fixed daily leverage exposure to stocks or indexes that the DLC is tracking.
With DLCs, traders can make a profit in either direction of the market. DLCs utilise leverage, typically about 5 or 7 times. If a counter goes up by 3% in a day, the DLC will go up by 15% (for 5x DLC) or 21% (for 7x DLC). With DLCs, we can also take a position on either direction of the market. This means if we think prices will drop, we can buy a short DLC and make profits if prices go down. You can read more about how DLCs work here.
For anyone interested in learning more about DLCs, our friends over at Investing Note are organising an Index Trading Rally in collaboration with Societe Generale. This is a virtual event where you can vote daily on how the Hang Seng Index, S&P 500, the Straits Times Index and Nasdaq Index will perform each week.
For example, if you think the Hang Seng Index will go up on Day 1 and Day 2, and go down on Day 3, then you can vote daily that way. With this, you stand a chance of winning some prizes including a Samsung Galaxy Fold 4 (worth $2,400).
Besides voting, there will be other activities such as webinars where you can learn more on index trading conducted by speakers including SGX Academy trainer Robin Ho and Binni Ong.
Full details can be found here on their event page.
DLCs are just one way of trading the financial markets. It provides short-term, leveraged exposure for traders who wants it and is not meant to be instrument for long-term investors.
As the financial markets are in a downturn during this period, it’s vital to make use of the time now to learn and understand all the various financial instruments we have at our disposal, and to know which instruments can help us in our investment and trading journey.
