If you follow economy news and the market indexes, you would get entertained always. While there were a number of bad news released just last month, a few ‘better news’ have been released subsequently. For instance, in September 2019, China and the US committed to restart trade talks in October. Shortly after, Trump announced to delay the tariff increase for two weeks. In Europe, the European Central Bank (ECB) cuts deposit rate from -0.4% to -0.5% and launches a 20 billion euros stimulus to shore up Eurozone economy. This news seemed to have provided some relieve to the market.
Apparently, volatility is still part of the game. In the last issue, we had covered the first part – Stock Selection. Today, let us discuss the second part – Strategy. As usual, let us have a look of our portfolio for this month.
The portfolio above has showed a gain of 220% since November 2015. In September, we received 2 cents dividend from HOMERIZ that amounted to RM1200.
Bought VS Industry (6963)
VS Industry is engaged in manufacturing, assembling and sale of electronic and electrical products and plastic moulded components and parts.
In March 2019, VS won a contract from Bissell, the largest floor care products in the US, in terms of sales. As one of the worlds’ top 50 EMS providers, VS is a beneficiary of the ongoing trade war. Technically, the nine months uptrend of VS has seen it close its big gap that occurred in December 2018, implying the momentum is likely to continue. According to Bursa announcement, the management of VS and EPF have been accumulating VS shares lately. So, we bought 30000 shares of VS at 1.28. After adding the dividend received, our cash on hand is now at RM37381.
Strategies in times of volatility
There are five strategies you may consider using in times of volatility:
1) Buy when the market is panic
Be greedy when everyone is panicked, because that is the time you would get great bargains. Look at what happened in the last few months. When the market plunged, most counters went down like the end of the world. However, those were the times when the stocks were oversold. If you remain composed and act like a contrarian, you are likely to have bought at good prices.
2) Take calculated risks
To win consistently, you need to manage risks.
Once you have bought a good company at a great price, it is a good start. To continue, you need to have a clear target exit price and cut loss price. An exit price is the price you want to take profit, be it 5%, 10% or more. Whereas a cut loss price is the price you want to sell when it does not work in favour of you. Ask yourself, “How much can you afford to lose?”
Remember, both exit and cut loss prices should be set before you start buying. Most people end up losing money because they don’t manage risk.
3) Add wisely
There might be a time you want to consider adding if the price goes down. Only do so when you see the following two conditions fulfilled. First, when the price does not fall below critical support such as the MA200 and round number or strong previous highs and lows. Second, when the price has fallen to at least 5%, and with that, you can lower your average price more effectively.
If the price goes up, consider adding when it has gone up 3-5%. In this case, you would not increase your cost much.
4) Create a watch list
You can only use the first three strategies effectively if you have a watch list in the first place. Filter the companies with good fundamental and prospect, and identify the right price with their valuation. By doing so, you would have prepared what to buy and when to buy.
5) Hold some cash
Holding much cash might not be a good idea in the Bull Run, but in times of uncertainty like now, cash is essential. Therefore, always keep a portion of cash, like 20-30%, as opportunity arises unexpectedly.
Now you have learned how to adopt the five strategies in volatile times. It is time to use them with good companies, so that you would increase your chances of winning.