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Why going through a market downturn early in your career is one of the best lessons ever

Why going through a market downturn early in your career is one of the best lessons ever

2020 was the first year I experienced a major market downturn. Stock prices slid rapidly, and I saw my paper gains quickly turned into paper losses. As much as I can be reminded of Warren Buffett’s quote of “Be greedy when others are fearful, and be fearful when others are greedy.”, in reality, it is not so simple. I faced two dilemmas during the market downturn.

“Should I sell now when I am still making a profit albeit a reduced one?”

“Should I buy more given that I know the fundamentals of a particular company is good but the whole world is panicking and I do not know how much lower it will go?”

I made the amateur mistake of both. Which is 1. to sell existing stocks the moment markets recovered with a reduced profit as compared to pre-COVID prices, and 2. not buying more of certain stocks given that the company’s fundamentals are good.

These are very valuable lessons for me as I could not fully capitalize on the opportunity presented in front of me. Hence, this serves as a reminder for me for subsequent market downturns in the future.

I believe market downturns are one of the best teachers we can have in our lifetime for the following reasons:

A. When you are just starting out in your career, you do not have much savings. Even if you lose in the stock market, you will not lose much.

Early on in one’s career, when one’s net worth is still not very high, such market downturns can prove very valuable. When stocks across most sectors and geography tank due to poor market sentiment, you will learn that it is only temporary. What goes down must come up, just a matter how of long it will be. Hence, if you are new to investing and have realized a net loss due to the market downturn, it is totally okay. Money, can always be made again and opportunities are plentiful if you look hard enough.

B. You will learn more about your risk appetites.

I found out that I am a person who is more afraid of losing money (due to a few bad trades and poor timing) than to gain massive returns. However, I also found out it was because I did not have the right mindset. I was hasty, wanted quick returns, and had previously invested based on a herding mentality. I’ve learnt that if you have the holding power, the paper losses do not matter. Also, there are certain stocks which even covering for the downside, the current price do not make sense and that is where it will give you the confidence to plough back in.

For example in August, I noticed that Comfort Delgro has been oversold. I sized up my investment and went in at a good price of $1.42 / share on average. I made sure not to be encaptivated by fear of losing, by making sure my downside was covered. I took the opportunity to speak with cab drivers to get a feel of what is happening on the ground. A lot of them told me that it is impossible to get back to pre-COVID levels without tourists. Hence, I believe this is temporary and will recover once global travel resumes.

C. You are less likely to make the same mistake should a future downturn happens.

It is best to experience a market downturn in your 20s rather than in your 30s. This is because in your 30s, you would have commitments like a family, a house, other expenses and having experienced a market downturn could be very painful. Psychologically, seeing your portfolio drop in value could make you lose faith in investing and your decisions made in the past. However, in our 20s, you would have less commitments and will be less likely to make investing mistakes like selling too early, not buying in when opportunities present itself, etc.

For me, I feel more confident now investing my money if the pros outweigh the cons.

D. You are less likely to buy too early, relying less of your gut feel and more on facts and data points.

I wrote previously in my post here that most retail investors rely on gut feel and buy thinking that “it is cheap”. However, there must have been a better way to rely on facts and data points.

Stephen Schwarzman, Co-founder of Blackstone advised against reacting too quickly and that it is better to forego the first 10-15% of a market recovery to ensure that you are buying at the “right” time. That said, applying his advice to real-life situation, we surely will not be able to predict that March 2020 last year as the bottom of the cycle. But even if we had bought in during April 2020 or May 2020, I believe it would have been a safer choice.

E. In the later part of your career, when you have amassed more capital, you would be able to size up on good investments.

The older you get, the higher your salary will be, and the more your capital will have been amassed. This will give you the confidence to plough more into stocks which have better risk-adjusted returns.

F. You will fine-tune your own exit strategies

Having done a bit of equity research during my university days, I have realized that brokers’ target prices of companies are subjective. This is because assumptions can be subjective just to reverse engineer and attain the “target price” that you want.

Hence, I myself am still fine-tuning my own exit strategy and trying out different ways. There are far too many times when a stock has went up in value and it was the right time to sell, but I didn’t. There are also far too many times when a stock has not hit its potential value, and I was too quick to sell.

I believe exit strategies are very personal and will be tweaked accordingly to one’s own life circumstances, and only you will know it in the later part of your years.


What are some of the investing mistakes that you have made early in your career and how have you changed it? Share with us in the comments box below.

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Best wishes,

Finance and Toast


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