How to prepare for a bear market

Just finished listening to Tony Robbins on a podcast where he discusses how to prepare for a bear market and be unshakeable/fearless. It was a fantastic interview and a timely reminder. To put this into context, the last bear market (crash) was in 2008 and market crash happens on average every 5 years, so we're overdue for one. The question is, are you prepared both financially and mentally? From a financial strategy point of view, he advises everyone to take a percentage of their money (income) that they'll keep forever, grow and compound, and provide passive income for the rest of their life without working (trading their time). 

"You're never going to earn your way to wealth."

To be financially rich, he says that we need to be owner of businesses. We can do this through owning a index fund and being well diversified.

Mentally, we have to be prepared because we know "winter" is coming and winter is the best time on earth. It is the greatest opportunity of our lifetime to leap frog financially. The strategy is, you don't need to panic. When markets go up and down, you don't go up and down. Apply stoic philosophy here.

What is the difference between a market correction vs a crash? A correction is when it drops from the high of 10% or more up to 20%. A crash or bear market is when it drops 20% or more up to 80%. Yes! 80%, like in the great depression. 

So when the winter comes, will you be financially and mentally ready?

A strategy as a retail investor

Note to self based on what I learned from Mr. Chua Soon Hock, an investor with remarkable consistent results;
Overcome and control basic human weaknesses (greed, fear, impatience, pride and laziness) when put to the test in an uncontrollable market. Pay detailed attention to the process of applying sound investing methods. Focus on time, size and price  management- all within our control. Shares will be at basement prices when bearish psychology is extreme and liquidity is tight. Be patient.

Strategy for retail investors by Chua Soon Hock (Asia Genesis Equity Fund);
Timing- For situations where share prices are low due to a weaker economic cycle... "based on my experience it is best to buy on the day following the national government's admission that the economy is in a recession and gives a negative GDP forecast for the rest of the year." 
For a market crash due to a special event "it is normally right to commit 50% of capital on the same day of the event and rest of the 50% within a week."

Type of shares to buy- "Buy the top two of the best-managed institutions from each of the key sectors of banking, media, telecommunications, healthcare and computer software."
My Watchlist:
Banking- DBS, OCBC
Media- SPH, MM2 Asia
Telecommunications- Singtel, Starhub
Healthcare- Raffles Medical, FIRST Reit, (Riverstone?)
Computer software- Silverlake Axis, ? 

When to take profits- "Shares bought resulting from a market crash due to special events (ie it is a one-off situation), one can take profits when profits are between 50% to 100% within a six months period. However, for shares bought as a result of an economic crisis or economic downturn one should keep them for years."

Frequency of participation in the market- "Assuming a 35-year investment life, one can expect to participate in three to four complete economic cycles, with each cycle of about eight to ten years, yielding returns of at least 200% over capital...in addition be rewarded with about five event market crashes, which should yield at least 50% for each event."

Source: SG Thumbtack Investor

Define financially free from a stoic thinker perspective

How do I define financial freedom? If an individual has the choice at any given moment to stop working for an active income and still maintain their chosen lifestyle throughout their entire life - then he (or she) is financially free. By 'active income' I mean having to do the work themselves to produce the income. The common misconception though is that to be financially free, one must possess monumental wealth. This is not true for everybody. As long as you are in keeping with this simple formulae, whereby your recurring monthly passive income is always greater than your monthly expenses (based on your lifestyle), then you are still considered financially free. 
However, life throws curve balls at us once in a while. We've all been there. How about our car that suddenly breaks down and requires $500 in repair/replacements, or $1500 airplane ticket because of an unexpected family emergency? In this situation, you'd be out of balance if your monthly passive income is usually only slightly above your average monthly expenses.
So to refine the above definition, to be completely financially free, not only should your recurring monthly income be able to cover your expenses (based on your lifestyle) and then some, but you need to have enough cash reserves saved up for 'emergency' fund.
The ideal situation would be to be working in your current 'job' because you simply love it and not because you have to. It's a calling whereby you get abundance of joy and fulfillment from your contribution and making a difference in the world. The active income from it (if any) is simply a bi-product but not a necessity to 'make a living' from it. If one is in this position, I think this is where real creativity and productivity resides. One does not need to be distracted by thoughts of worry about how to pay their bills next month, but rather pursue excellence and fill their minds with things that they care about most. Interestingly, people in this kind of position end up with more financial abundance.

 

Good news for buyers who are looking for good-value Singapore properties

In the last few years as the Singapore property market just continued it's slow and painful grind downwards (10.8% correction over 12 quarters since the peak in 2013Q3), investors with little holding power have sold their properties with losses. Based on resale transactions of condominiums and apartments where the previous caveats can be traced, The Edge Property revealed that the proportion of unprofitable deals rose from 10% in 2015 to 17% in 2016. Defaults on residential mortgages increased from 2014 through to 2016, a trend that is likely to continue as retrenchments and vacancies increase, rentals decline and continual interest rate hikes in 2017. Furthermore, adding to the downward pressure on prices is an increase in supply in the market due to the massive ramp-up in residential developments after the last Global Financial Crisis. Based on URA data, there are approximately 44,000 units of private residential properties to be completed in the next few years.

If we are currently in the early bear stage of the property market cycle, we need to sit tight and wait for further correction. The late bear and early bull stages, will present opportunities to buy good-value properties. Patience is a virtue.

Thoughts on money, time and energy

The amount of time and energy that we possess can determine the quality of our life and our relationships. Do you have enough time and energy to exercise? To read and learn? To spend quality time with your partner or your kids? To travel and explore the magnificence of this world? Time and energy are truly valuable because look at money...can be made and lost...time can never be made! Being rich is having money; being wealthy is having time. A wealthy dad once said, "scrape, save, and invest". That is, go from working for money to money working for you. This will allow you to have more "time", and as a bonus you get more energy! Conversely, a person may be monumentally rich, but have very little time, poor health and failing relationships.

Stock market panic selling

The stock market moves up and down, and in the belief that they can somehow time the market, traders will jump in and out of shares. The truth is- many get it wrong, and experience an emotional roller coaster ride in the process. One characteristic that stoic investors have in common is their ability to have control of their emotions. If they did their homework and is invested in a great company, and the shares of this great company have fallen due to stock market panic selling, they'll simply add and accumulate more to their existing holdings rather than panic. History has shown that this is how successful investors have made their fortunes.