Simple sell rules to protect against disaster in financial markets In my past posts, I reveal some of my stock picks. It is meant to track my own progress and get a better feel of the market, not meant for others to follow. I'm not a qualified financial advisor. My worry is that some readers may blindly follow the stock picks and end up losing a lot of money because they sold poorly. I do not wish to do anyone any harm. So, I feel obligated to write some simple sell rules that I follow myself. The purpose of these sell rules is to protect against disastrous losses, not maximize profits. You may want to use them as guidelines for protection. When the price closes below the 50-day moving average initially, re-examine reasons for buying. If the reasons are still as strong as when you bought the stock, you may want to continue to hold. If the price continues to fall further when it is already below the 50-day moving average, sell the position partially even if the reasons are still strong. I don't argue with Mr Market. Years of experience being slapped by Mr Market has instilled in me a strong respect for Mr Market. If the price continues to fall further even after the position has been sold partially, consider selling more until it reaches your emotional comfort level. If you are emotionally comfortable with the falling price, hold. No right or wrong here. What is important is to reduce some risk exposure when losses mount. When the price close below the 200-day moving average initially, sell the position partially. Don't argue with Mr Market. Respect Mr Market. If the price continues to fall further when it is already below the 200-day moving average, sell the position completely. Respect Mr Market. It is entirely possible the price may bounce back strongly after selling below the key moving averages. It is also possible that the stock may drop to a disastrous new low if you do not sell. Even a blue-chip stock with impressive growth numbers can disappoint. See what happened to Ali Baba (9988.HK) this year 2021. If you had sold Ali Baba when it first fell below 200-day moving average, you would have gotten out at around HKD228. Today, Ali Baba closing price is HKD121.20 which is close to 47% below HKD228. Nobody knows which stock will be the next Ali Baba. By following these rules, one can avoid financial disaster. These rules are written to protect my readers who are not yet experienced in financial markets to know how to react in bear markets. The honest truth is that these rules work against you quite often, especially in a bull market. However, if you follow them all the time, you will be protected against financial disaster. Financial markets are dangerous. Please heed these rules if you are new to markets. I do not wish to cause harm to anyone. I follow these rules with discipline myself. During the exceptional times when I do not, my position size is small enough such that even when I lose 100% on the position, I will do fine. If you have your own investment style, these simple rules may not suit you. I'm aware there are people who go against the tide, buy on the dip and make good money from it. Your choice.
I am more discretionary when it comes to taking profits. No hard and fast rules here. Risk management rules are simpler because I deliberately try to keep them simple. It's too dangerous to argue with Mr Market when the market starts to look shaky and losses are mounting.
Couldn't agree more. I have very strict exit rules both for stops and profits. I'm beginning to question how I take profits. Up until a while ago I was taking profits on the way down. Now I'm experiment with taking part of the position off when I hit a target on the way up.
Markets rebounded. China indices power ahead. Weekly observation 10Dec2021 The past 2 weeks were terrible markets for global stock markets. This week, the stock markets rebounded across the board. The major U.S indices like S&P500, Nasdaq100, Dow Jones Industrial Average staged a strong rebound in terms of percentage gain. Unfortunately, the rebound was in lower volume compared to last week. U.S markets have yet to recover. Shanghai Composite Index(SSEC) and Shenzhen Composite Index(SZSC) have been rising for 5 consecutive weeks. This week was another good week and it was accompanied by good volume as well. SZSC even hit a 52-week high. This strong performance is despite Evergrande defaulting for the first time on USD1.2 billion of bond debt. Evergrande owes USD300 billion in total debt. This week, Renminbi was so strong that China's central bank (PBOC) tried to curb its rise with a surprise weak fix. I wonder how much of Renminbi's strength was due to foreign capital inflow into Chinese stocks. Global stock indices 03Dec2021-10Dec2021 sorted in descending order with respect to the 50-day moving average (*percentage over exponential moving averages) Tables above show where the stock indices fare with respect to the moving averages, sorted in descending order with respect to the 50-day moving average. It is quite obvious several stock indices made good improvements this week, moving up above their 50-day moving average. Hang Seng Index continues to remain at the bottom of the table. On a personal front, my China portfolio suffered some damage this week. The damage looks acceptable, given the gains in the past weeks. Here is the performance of the stocks that I revealed in past weekly updates. Broad market statistics 03Dec2021 - 10Dec2021 The broader markets in Singapore and HK markets made improvements but not good enough to get aggressive in these markets. China's stock market gets my attention at this point in time.
Thoughts on 2021's global markets movements Among Asian stock markets in 2021, India stock market was the best performer. The worst performer was Hong Kong. HK's 3 major indices were down at the bottom. What goes down a lot will be added fuel for the next rally. Hang Seng Index has been trading below book value near the end of 2021. The low valuation will add energy to the bull market when it eventually returns. I do not know when the bull market will return but I amstaying alert on Hong Kong's stock market in 2022. Performance of major Asian stock indices ranked from best to worst European stock markets performed superbly in 2021. None of the major European stock indices was negative. Most of them enjoyed double-digit gains and most of the double-digit gains were above 20%. 2021 has been a wonderful year for European bourses. In fact, it was the second-best year since 2009. American stock indices also had a wonderful year. U.S indices had another wonderful year, although I hear plenty of grievances from investors who selected stocks outside of the indices. It was a terrible year for those who bet on 2020's growth stocks and sold too late or never sold. ARK Innovation ETF fell 24% in 2021 which explains why growth investors had a terrible 2021. USD was a very strong currency in 2021. Turkish Lira(TRY) depreciated 79.32% again USD. Everyone should pay attention to their country's currency. Residents of developed countries like U.S, Japan, Singapore are lucky to be governed by competent people, so most of them do not worry about unstable home currency. If the currency depreciates like the way TRY did, the value of your assets and savings in the country will be decimated, even if the local assets are well-diversified. Some ownership of foreign assets will be good protection against a currency crash. The strength of USD in 2021 made other major currencies like EUR(down 7.55%) and JPY(down 11.47%) look like emerging countries. I am surprised by Yen's weakness. It makes Japanese assets cheap. Perhaps I should also start paying more attention to Japanese stocks.
Time to tiptoe back into HK market Highlight this week was Hong Kong's stock market performance. Hang Seng Index(HSI) rose 3.79% this week. HSI has shown enough recovery that there is enough bullishness for traders to tip-toe back into the market. However, HSI is still below 200day moving average. China's stock market is weak. It is hard for HK stock market to have a strong rally when mainland China's market is weak. This is why I use the word tip-toe. Certainly not time to be aggressive yet. Straits Times Index(STI) has been an outperformer among Asian stock markets year-to-date. Unfortunately, the outperformance is mainly driven by banks and not shared by the broad market. Same thing can be said about the HK market. So far this year, financial stocks have been doing well, thanks to the Fed plans to raise interest rates in the coming months. Rising interest rates raise profit margin of financial companies who can lend out at higher rates. Energy-related stocks also performed well. S&P500 energy sector ETF rose 16.23% year-to-date and it is only the second week of the year. This is not good news for consumers who are worried about inflation. Inflation is also bad news for investors because rising inflation pressures central banks to raise interest rates. Rising interest rates have always been bad for stock markets historically, except for a few select sectors like financials. The biggest threat to stock markets this year is rising interest rates driven by rising inflation. Indeed, 2022 has not been a good start for most stock markets so far. Most stock indices are in the red year-to-date, though it is still early for the year.
Global stock markets "celebrating" Chinese New Year in advance. Red Red Red. 21Jan2022 This is a terrible week for stock markets all over the world. It seems like they are "celebrating" Chinese New Year one week in advance. Red red red everywhere. Hong Kong was the only major market which remained green this week. Hang Seng Index rose 2.39% this week. This is the only good news after last week's positive call on Hong Kong's stock market. Most of the major stock indices are the red year-to-date. Hang Seng Index and Straits Times Index are out-performers in 2022 year-to-date. Unfortunately, these are small markets. It is unlikely they can remain strong when the giant markets U.S and China are crumbling. Indeed, look at the weakness as indicated by the percentage of stocks below key moving averages in the broader markets of Singapore and Hong Kong. It is still a hostile environment to buy individual stocks in these markets, unless you are an astute stock picker. Certainly not yet time to buy stocks aggressively yet. Nasdaq100, which had been the champion stock index in the past several years, is now down 11.53% for 2022 and the month of January is not yet over. When a market leader is down so much so fast, it is a worrying sign for what holds for the rest. Stay cautious.
An even more terrible week for stock markets after last week's terrible week. 28Jan2022 As if last week was not bad enough for stock markets, this week was even worse. Notable observations from the table above; Singapore Straits Times Index(STI) is now the number one performer among the major stock indices in 2022 year-to-date (28Jan2022) Shenzhen Composite Index has tumbled to almost the bottom. This has been a worse week for China's stock market than U.S. Big bets on Chinese markets by the experts on Wall Street is going all wrong. This week's terrible performance was driven by the Federal Reserve's intention to raise interest rates. Fed's actions affect not only the U.S market but markets all over the world, thanks to the economic superpower status of America. Broader markets in Singapore, Hong Kong and China took a deep dive this week. Just look at the plunging numbers in the broad market this week compared to last week. China's numbers look particularly atrocious. I will be highly selective in buying individual stocks when the broader market is so weak. I will continue to pay attention to Hong Kong's stock market. Since 16Jan2022, I have been tip-toeing back to HK stocks. My HK portfolio did not decline as much as I expect this week. This is a good sign. When markets are weak, don't get too aggressive in buying stocks to avoid catching falling knives. This is what I call a buy-what-lose-what market. Tread carefully and use a much stricter criteria to buy stocks in this market environment.
China's stock market was closed last week. This morning Asian time, it opened in the morning up 2%. Interesting ... Highlight again last week was Straits Times Index. Straits Times Index continues to maintain its position as leader among major stock indices in 2022 year-to-date as of end of last week 04Feb2022. Let's observe how this week goes. Hong Kong's Hang Seng Index is catching up.