The Australian Stockmarket is crashing, and the psychological battering isn’t far behind the financial battering. Markets are moving up and down at anything up to 7% per day. It started with what looked like a healthy pullback and just got worse and worse. At first we don’t react in these situations and then once we realize something is seriously amiss, the market has fallen so far we start to think we may as well hold on.
Then it deepens and we start to watch our bank balance rather than the Stockmarket. Some will decide to take action and sell down. Then you wake up the next morning only to see markets have rebounded 5% and you’ve missed it. Then you don’t know whether you should buy or sell and the experts aren’t helping as some are saying buy and others are saying sell.
At this point you listen to anyone who is telling you what you want to hear. ‘Markets always recover’ or ‘Coronavirus is going to get worse before it gets better’. The media are talking up everything because that’s what they do and the whole thing is happening so quick it’s all a bit surreal. Everything except your bank balance! Fear has become our biggest enemy….because our animal response is to do nothing or sell everything.
And this polarised reaction prevents us from acting rationally. That and any embarrassment we may have at the decisions we’ve already made. I know all this because I’ve been through this process before…a few times. And I said a couple of weeks ago that we are at the beginning of the end of the decade long global bull run. This is the first phase of a reversal pattern that will play out over coming months.
You do need to sell or hedge out growth stocks, but hold on to income stocks. But it’s too early to hedge income stocks because there will be a relief rally. I don’t know when or how far at this point…but there will be a relief rally. Then markets will begin fall again and the real downcycle will begin. And how we manage our portfolios going forward is completely different from what we were doing just a few weeks ago.
There will be some amazing opportunities and we need to look forward and be ready…get off the back foot and onto the front foot. Losses are repaired by future gains and buying back in at much lower prices. But we’ll need some cash for this. So what we have to do right now is prepare for the bear. And I have a proven track record in these situations. It’s on the public record that I advised my clients to sell before the GFC.
And I started selling down all my Top 10 portfolios over 2 weeks ago and they were completely out or market neutral at the start of the week. In fact my ASX Top 10 Portfolio actually made a small profit on Wednesday and Thursday. This is because the handful of shares I am still holding outperformed the hedge. However I was taken by surprise when this correction began, just like everyone else, but market experience helps me to avoid the psychological log jam.
My father was a trader before me and much of my knowledge in these circumstances comes from him. I am the beneficiary of my fathers market experience and I still haven’t matched his record of selling down his holdings in late September 1987. But I can manage a bear market with the best of them and I look forward to helping you as we enter this new phase.
Doing nothing is not a solution – selling everything isn’t the answer – preparing for the bear is the way forward…
|Kind regards, Alan Hull|