Does it upset you?

Yesterday the HSI lost more than 1100 points again and totally wiped out the 1096 points surge in last Friday. In fact speculation on re-bounce in a down trend market is a very risky business like the attempt to catch a falling knife. So far the HSI has fallen 25.6% and 35.2% from the latest peak or the historic peak respectively. The biggest trigger of the plunge is out of question the outbreak of the global pandemic. As it is event driven so no one can tell where the bottom will be until the global infection rate and most of all, the death toll, are stabilized. However, it is pretty sure that a lower level is yet to come.

As what I put in my post Correction or crash?(3) that if the HSI breaks the last foothold of 19400 level then it is very likely the Wave C is on its way. Anything below 19400 means a more than 42% plummet from the historic peak. Not all stocks, in fact most of them not, are synchronized with the HSI on the magnitude of plummet. Again the history is a good reference. The valley of 10676 in 2008 October is the departure of the past uptrend. The prior peak of this valley is 31958 in 2007 October. The valley was a 66.6% fall from its peak. However, many stocks have suffered more, or much more, loss than was the then HSI lowest point. For example, SHK property(0016) was -72%, HSBC(0005) was -78%, Galaxy(0027) was -90%, Great Wall Motor(2333) was even -97% meaning its lowest point was only 3% of its peak! A nearly total loss!

A casual glance on most of the optionable stocks revealed a current fall of a roughly average of 40% from their 52 weeks peak now. If the HSI is going to fall further then very likely some of the individual stocks are going to be suffered a further loss from their 52 weeks peak. The record from the crash in 2008 showed the randomly chosen 60 optionable stocks have suffered an average 80% loss from their peaks. If there will be a crash and if the magnitude is same as the last one, one can reasonably expect there will be another 40% fall from their peaks for most of the stocks. This can explain why catching a falling knife now is a very risky business.

Despite the fall in stock prices in 2008 was scary but  in last year some of the big cap stocks have re-bounced and even surpassed their previous peak in 2007 like CLP(0002), Hang Seng(0011), Henderson Land(0012), MTR(0066). These big cap stocks tally what Buffet's saying that in long run buy and hold on good quality stocks could be a good strategy. Having said, interestingly there are also some big cap stocks failed to return to their peaks in 2007 even amid the HSI historic peak in last year like SHK(0016), China Life(2628), PetroChina(0857) and China Mobile(0941) etc. Surprisingly these underdogs are also, or at least once, regarded as star stocks.

It seems choosing the right stocks is still the key point in terms of Buffet's buy and hold strategy but it is easier said than done. A Monday morning quarterback is of course always right. Without a crystal ball, one can only rely on the historic trend of the stocks for clue. In my post stock picking make easy I raised the idea of picking stocks with a long upward trend, say, 15 years in the hope the trend can continue even after a crash.

Apart from a track record of upward trend, if a stock is giving out a steady growing dividend payout every year in the past 10 years. If there will not be a big change in its fundamentals then it is likely that it will keep paying a promising dividend in the years to come. Naturally nobody likes to see his/her portfolio's value is cut by half or even by 80% but when a crash happened then this is the life that investor has to live with when he/she does not has a crystal ball to cash the portfolio before the crash.

While the fall in stock prices in a crash is substantive but one can choose to change the mentality to perceive it in another way. Perhaps people can imagine they are the owners of the businesses which they have stock holdings. I believe Li Ka Shing is not bothered at all even the stock prices of his companies fell in any of the past crashes because he knows his companies are still making money for him, disregard the stock price level. So as long as the portfolio of their stocks are with a solid business model that can survive this crash then people can just leave them alone and just wait to let them to climb to, hopefully, an even higher peak after this drought.

Rather than focusing on the fluctuation of the stock prices in their portfolio, perhaps one should spend more time on scrutinizing the business model of their stock holdings instead. If your stock holding displayed an upward trend in the past 15-20 years, giving you an annual 5%+ dividend and a growth on the absolute dividend amount over the years, and most of all, it shows a track record that it could make an even higher peak than that before this crash, then does it upset you?