There are many reasons to why Singaporeans don’t invest in a slowing economy. They are uncertain, they are afraid or they don’t want to add to their already losing positions.
Given that several unpredictable world events have taken place this year, Singaporeans are more skeptical than ever. Coupled with a downturn in several major commodity markets including the oil & gas and metals which has brought its respective industries to its knees, many investors are intimidated by the idea of putting their wealth (or more of their wealth) at the mercy of the volatile market conditions.
With little notion on the duration of these uncertain times, and no reprieve in sight, many investors have shied away from the markets. They prefer do nothing – to wait out the slowdown.
What many investors don’t realise is that inflation will slowly be eating away at their wealth in any case. The best thing an investor can do in downcycles is to look for good solid companies to invest in. A downturn will weed out bad companies and allow the good ones to shine through. Best of all, this presents opportunities for investors to collect these good solid companies at discounted prices.
Here are some things you can do in a slowdown to improve your portfolios.
Riding on the falling market
First of all, when it comes to a bear market in a slowing economy, investors can still make money. Riding on the falling market, investors can choose to short stocks. Shorting stocks is when you sell stocks that you do not own. This is, however, quite a risky strategy as it requires investors to “cover” these stocks – this is to buy back the stocks that they have actually sold in advanced.
Investors should note, though, that this technique can be very technical and should only be performed by experienced investors or traders.
Value investing at a discount
Value investing is made even more lucrative during bear market as stock prices of both good and bad companies are depressed. The hard bit is to find the good companies to invest into.
One of the best place to start looking will be companies with long histories of proven track record, profitbability and have strong balance sheet with enough cash to tide them through tough times. These are companies that would most likely have gone through several downturns in its lifespan and have emerged from them stronger. A trait that investors should look for in every company they seek to buy and hold.
The STI (Straits Times Index) is a collection of the 30 of the best companies in Singapore. This represents a good place to start searching for good companies that will likely ride out downturns. Any investors that are unsure, can use the STI ETF (Exchange Traded Fund) to invest in all 30 companies and rely on the index to weed out the poor quality companies.
Read Also: Why It Makes Sense For You To Invest In ETFs
For investors who are already vested in a portfolio they strongly believe in can also take advantage of the slowing economy to pick up more stocks. This particular group of investors can look to apply a dollar-cost averaging strategy to their portfolio. Over time, by picking up stocks at both good and bad economic conditions, investors will be able to improve the position of their portfolio, increasing their earnings when the market recovers.
Financial media usually portrait economic downturns in a very bad light. Investors should understand that the economy will fluctuate up and down – it is very normal over the history of financial markets to go through up and down cycles.
By understanding the fundamentals behind the stocks in your portfolio, one can look leverage on downturns to boost one’s portfolio.
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