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Stock Market Crash – Blood and Fear in the Streets, and What We Can Do

Calvin Lo

We have officially entered bear market for the S&P 500 since Monday 13 June. I can feel the pain felt all over social media and in my own portfolio which is bleeding profusely as well. The overwhelming feeling is that a lot of blood has already been spilled.

We’ve seen hedge funds revealing huge losses and tech billionaires losing billions in net worth. A few in social media circles have also come out to reveal their losses (which I admire). I’m guessing that the portfolios of many retail investors have also taken a huge beating.

Emotions are running high, not unlike the euphoric top in late 2021 but in the opposite extreme. Volatility is spiking, market signals are erratic, and analysts opinions are scattered. I think people are unsure what to do, so they just sell first and think later.

One of Warren Buffett’s famous quotes is “be greedy when others are fearful”. What’s for sure is that besides blood, there’s definitely fear in the streets too, according to CNN’s Fear and Greed Index. Question is, is this the time for investors to buy?

More pain ahead?

Not to sound overly pessimistic, but I think there’s still more pain ahead. We’ve only just fallen into bear market for S&P 500, and typically bear markets last around 12 months on average. See my previous post here regarding bear markets.

Read also: 10 Things You Should Know About Bear Markets

Based on past bear markets, I think we can easily expect another 10-15% downside from here but we should also be prepared for even 20-30% more declines.

That said, if you can stomach even more pain than what we’ve already experienced, there’s opportunity to pick up quality stocks at great prices. And if you’re not into stock-picking, just buying index funds at discounts has also proven in the past to be a great strategy.

However, that doesn’t going all in or trying to time the bottom. If you’re thinking of buying, you need to be strategic and be mentally be prepared for more ups and downs.

Focus on learnings

Personally, if this bear market turns out to be as bad and prolonged as feared, it will be the first I’ve experienced since I started my investment journey a decade ago. I don’t really count the 2020 COVID-induced crash since the market bounced so quickly with the support of the Fed.

Amidst all this carnage and demoralising situation, I try to look on the bright side. Since I have a long investment horizon, this 2-3 year period might be one of the most instructive and the learnings might benefit me for many upcoming bull/bear cycles.

So instead of mourning my (unrealised) losses, I’ll be focusing on watching and learning from market signals as well as taking note of my emotions and responses to them.

Looking beyond the here and now, there’s a long investment journey still up ahead. We will also still be earning an active income for a few more decades and our investment capital will continue to grow. These lessons will be much more important in a decade or two when our invested capital is much more and we are closer to retirement thus have a smaller margin for error.

I’ve already learnt so much from the QE fuelled super bull market in 2020/21 and the euphoric peak in late 2021. Admittedly, I was also drawn into the party and pivoted our portfolio more heavily into growth stocks are probably the worst time.

During the euphoric times likened to tulip mania where everyone was making money from crypto, SPACs, meme stocks, I think most investors could see the signs but chose to ignore them in hopes of juicy quick profits. Now, we suffer from the hangover. Hopefully, I’m smarter next time around.

At the time, growth stocks looked invincible, fantastic prospects, and seemingly limitless runway. Value and dividend stocks lost their lustre and were thought of as boring. As we know, all that has come crashing down and turned upside down. Indeed the market moves in cycles and reverts to the mean. Great to see it happening IRL.

What I’m doing

I’ve been entertaining thoughts of diversifying into commodities, oil, and/or value stocks, but so far I’m still not convinced that’s the right long-term move for our portfolio.

Prior to 2020, our portfolio was actually pretty diversified with pretty balanced exposure to value & dividend stocks, bonds, REITs, commodities and gold. However, I felt that our portfolio was “ahead of its time” and looked more like a portfolio mix I would like to have in our retirement years instead. So, I made the pivot in favour of growth with the view of diversifying gradually the closer we get to retirement.

From what I’ve seen so far this year as the market declines, a diversified portfolio would definitely have softened the blow considerably while maintaining a decent stream of income. A diversified portfolio would definitely underperform during bull markets like in 2020, but would not have tanked as much in 2022.

If you’re also wondering what to do next, I think the most important question is what is your current objective. For me, it’s accumulation and capital growth. I’m focused on increasing share count consistently regardless of current market condition, and also looking for opportunities in generational growth companies (10-20 year horizon).

Cash-wise, I’m 27% for Family Portfolio and 45% for Personal Portfolio. I’m not in a rush to deploy huge amounts of capital but will just be averaging in on the way down. Since we still have active income flowing in every month, DCA becomes pretty natural.

I’m also pausing investments into speculative assets like crypto, and doubling down on core index funds and quality growth stocks (not the pre-revenue SPAC/meme stock stuff). Time will tell if this strategy yields good returns, maybe 3-5 years down the road.

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Disclaimer: This is not financial advice. I am not professional financial advisor nor do I work in the finance industry. Anything I write here is purely my personal opinion. Please do your own research and due diligence before investing into anything. All investments come with associated risks. Best to consult a financial advisor if you’re still unsure.

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