It’s easy for someone to talk about how this has been the fastest bear market on record, with the Straits Times Index (SGX: ^STI) declining 32% below its recent high.
However, it is much more difficult for an investor to experience a market crash.
With hard-earned money at stake, our emotions end up being inextricably tied up with the stock market.
Many investors will undoubtedly be left shell-shocked at seeing their wealth evaporate at such a rapid rate.
SATS Ltd (SGX: S58), a blue-chip stock that does airline food catering and gateway services, has cratered 46% year-to-date.
Even a strong bank such as OCBC Ltd (SGX: O39) has declined 26% since the start of the year.
A strong feeling of regret and resignation may also permeate their beleaguered minds.
Here are three measures that you can take when the pain of paper losses becomes too acute.
Focus on the long-term
The first and most important thing is that you should stop latching on to short-term share price movements and, instead, focus on the long-term prospects of the businesses within your portfolio.
Ask yourself if the business will be able to survive this downturn.
Well-run companies with a long track record and a competitive advantage will be able to weather the storm and recover from this crisis.
These strong companies have a chance to become even stronger during downturns, as their solid balance sheets allow them to acquire flailing businesses on the cheap.
On the other hand, if you think there is a real chance that the business is unable to survive this, then it may be a good idea to sell the company, then use the cash to buy good, cheap companies during this crisis.
The world has been confronted by numerous crises over the last century — the Great Depression, Asian Financial Crisis, dot.com bust, SARS and the Great Recession.
Though Covid-19 is an unprecedented event that has caused worldwide chaos, it too will eventually pass.
Humans have always come out stronger after each downturn. The combined willpower and strength of the human spirit ensure that we will eventually overcome these challenges.
Turn off, tune out
Look around you, and you’ll realise that there is much more to life than the stock market.
Hobbies, relationships, people and food. These are a myriad of activities that you can engage in instead of fretting about stock prices.
If plunging share prices make you jittery, then perhaps it is time to turn off the monitor and tune out the bad news.
As long as the businesses within your portfolio are fundamentally sound, you should not have to worry about daily price fluctuations.
The Great Singapore Sale came early
There is always more than one way to view a situation — the classic “glass is half-full versus half-empty” analogy.
With the sharp plunge in share prices, I liken it to the “Great Singapore Sale” that occurs during the May-July period every year.
There are now bargains galore in the stock market that are ripe for the picking.
Investors are literally faced with a buffet of great companies to choose from, which is a happy problem to have.
This is a good chance for you to do a portfolio “clean-up” as well. Get rid of the lousy companies within your portfolio and, instead, buy companies with great long-term prospects that are on sale.
Get Smart: Manage your emotions
It’s important to manage your emotions when investing.
Fear and greed are enemies that threaten to derail our investment process.
Though it may be painful to watch your stocks getting slaughtered in double-quick time, remember that the market is an emotional creature.
While others may be panicking and dumping their shares, you need to remain rational and calm.
The three measures above will make it easier to sail through the storm. The sun will eventually shine again when the storm clouds disperse.
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Disclaimer: Royston Yang owns shares in SATS Ltd.
