Oh no! The markets are down!

Recently, the market has come down quite a lot mainly due to the European debt crisis. What are investors to do? A) Sell all your stocks, even at a loss B) Hold on to your stocks as they are fundamentally strong and average down when the opportunity arises C) Sit in a corner and pray hard Personally, I would choose B. By investing in companies that are undervalued and fundamentally strong, it doesn’t really matter what the market is doing during the short-term. In the long run, the true value of the company will be reached provided its fundamentally sound. Also, by value investing, we have a target at where we would like to sell it. This makes us grounded whenever there is short term volatility. Better still, if the price of the good company comes down further, we can average down. That’s why it’s wise to always keep cash in hand to seize the opportunity that the market presents. However, if you are fully invested, just wait by the sidelines as the market always realizes the potential of a solid company. Remember Warren Buffett’s quote: “Be fearful when others are greedy and be greedy when others are fearful”? It’s time to be greedy now when the market is in apprehension. If you have bought ETFs of the indexes, it may be wiser to liquidate your positions and sweep your profits off the table. The indexes have broken down past their weekly 20-day moving average and may see further downside as the charts show a downtrend channel. However, if you are sitting at losses, you may want to hang on to them as the markets are at fair value now anyway. If the market goes down further, you can always dollar cost average (DCA). Whenever there’s a crash or financial crisis like in Oct 2008, always remember that “this too will pass”. During crashes, people who take the opportunity emerge victorious at the end of it. If you had bought strong blue-chip companies like SGX, SPH, Capitaland during the crisis in 2008-2009, you would have seen huge percentage gains on your portfolio. Just for example, SGX was around $4 in March 2009. Today, its closing was at $7.35. You do the math. Historically, crashes happen every 6 to 8 years and the market always recovers after it. Will you be prepared when the next crash occurs? You better be if you want to emerge victorious…