US Federal Reserve Chairman Jerome Powell has set his eyes on bringing down inflation back down to 2%.
There will be a cost to that.
US unemployment rates, which are at a historical low, may move up. The probability of a recession has risen.
Singapore will not be spared.
In PM Lee Hsien Loong’s May Day rally, he cautioned that there could be a recession within the next two years.
This is not good news for businesses, of course.
Already, the NASDAQ is a whisker away from a 30% decline from its 52-week high, while the S&P 500 is teetering on the edge of a bear market.
Swimming against the tide
Amid the dour outlook, Warren Buffett is buying stocks.
This is not the first time the Oracle of Omaha is swimming against the tide.
In October 2008, he wrote an interesting phrase in his op-ed:
“In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.
So … I’ve been buying American stocks.”
Not every stock is worthy, mind you.
Buffett made it clear we should be wary of certain businesses:
“To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions.
But fears regarding the long-term prosperity of the nation’s many sound companies make no sense.
These businesses will indeed suffer earnings hiccups, as they always have.
But most major companies will be setting new profit records 5, 10 and 20 years from now.”
The Oracle of Omaha’s passage was written 14 years ago, but his statements are as relevant and true today.
What to do next
So, what will happen to the Singapore and international stock markets from here?
No one can predict with 100% certainty.
As investors, what we can do is to maintain our discipline.
This is the key to enduring through tough times.
But what discipline are we talking about?
- Discipline in choosing the right stocks: A market downturn should not be a reason to pick up any cheap-looking stock that passes by your eyes.
- Staying focused on what you need: Stocks that suffer a major decline shouldn’t be the only ones you should be looking at.
Buy what you want to own, and not necessarily what the market is offering you today.
- Not a make or break moment: Investors can be stressed out at this point of time. Some may feel they need to get it exactly right.
From our experience, we don’t have to be perfect in every decision we make.
- Discipline in how you deploy your cash: No one knows how long this downturn will last. So, take your time when it comes to investing.
You don’t have to invest all your money at one go. If your investing horizon is measured in decades, there will be plenty of time to add in the future.
- Opportunity for the long term: When it comes choosing which stocks to buy, always buy with the intention of holding for the long term.
That still applies. Stay focused.
- Understanding risk: Keep your eyes open and your feet grounded towards the potential risks in the businesses you own.
Get Smart: Should We Be Fearful or Greedy in this Market?
At The Smart Investor, we are not slowing down our pace of buying stocks.
Across all our portfolios, from our flagship service The Smart Dividend Portfolio to David Kuo’s Income Portfolios and The Smart All Stars Portfolio, we continue to buy stocks with the intention of holding for the long term.
While we may see some of the businesses we own take a hit on the bottom-line, we have also built in safeguards against a recession.
We trust our approach works.
Why? Because all of our portfolios have been battle-tested, surviving a global pandemic, and coming out stronger at the other end.
Share prices can still fall even more from where they are today.
The stock market will do what it wants to do in the interim.
Yet, the crazier the stock market falls, the easier our buy decision becomes.
Over the long term, which is the only time horizon that matters, we believe that our odds of success will increase with each market decline.
Provided we act on it.
First-time investors: We’ve finally released our beginner’s guide to investing. Read it in an afternoon, follow the principles, pick an investing style and buy your first SGX stocks within the next few hours! Click here to download it for free.
Disclaimer: Chin Hui Leong does not own any of the companies mentioned.