Markets are somewhat more calm this week but don’t be mistaken – we’re most certainly closer to the beginning of the bear than the end. As quick and sharp as the fall in the markets have been, bear markets don’t usually end in the same month that they start.

We haven’t even seen the damage pop up in the wider parts of the economy yet. Here are some reads if you’re in home quarantine or if you’re practising social distancing.

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Fight the Pandemic, Save the Economy: Lessons from the 1918 Flu (Liberty Street Economics)

The Fed’s New York Branch finds that:

Our paper yields two main insights. First, we find that areas that were more severely affected by the 1918 Flu Pandemic saw a sharp and persistent decline in real economic activity. Second, we find that cities that implemented early and extensive NPIs suffered no adverse economic effects over the medium term.

NPIs refer to Non-pharmaceutical interventions such as social distancing measures. If you’re worried about the impact of lockdown and social distancing measures on the economy, read the full post.

The Hardest Part of a Buy & Hold Strategy (A Wealth of Common Sense)

Just remember that buying and holding gold nuggets that have turned to turds is not a wise strategy.

Surviving Your Very First Market Crash (A Wealth of Common Sense)

This is for the beginning investor. I’ve been telling younger people that this is the best time to be in the markets. You rarely get to live through experiences like this without much to lose.

What a week! Can’t believe I had to say this again but the speed and volatility at which markets have dropped are nothing like what most people in the markets have experienced.

If you have holding power and are freaking out, here are some reads for you.

If you don’t have holding power and are freaking out, you should.

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Estimating Future Stock Returns, December 2019 Update (The Aleph Blog)

David Merkel’s model says that a buying opportunity is starting to emerge.

When Will Stocks Recover? (Morningstar)

Imho, still a little early to be putting out this headline but it gives a good overview of the kind of sentiment to look out for when expecting a recovery.

What If You Buy Stocks Too Early During a Market Crash? (A Wealth of Common Sense)

Ben Carlson runs a thought experiment. As for me, I find these times a good test of your investment plan. If your investment plan survives when all this is over, you’ll probably want to keep this play for future reference.

Financially Independent at 35 in an Unfortunate Way and It Can Happen To You Too (Dr. Wealth)

My only takeaway from this is the old adage of how more money is lost reaching for yield than at the point of a gun.

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Way back in January 2016, I wrote this post.

In it I added some more recent bear markets to the table that I had previously gotten from somewhere and updated it to try and crystal ball-gaze as to whether to things would be better or worse and this is basically what I said then:

2015/2016 – Oil, China, Commodities rout / 3539.95 (high in Apr ’15). Given today’s close of 2559.75, we have had a total of a  -27.7% drop over a total of 280 days.If we’re lucky, we’ll just have another 10% more of declines to go; If not, we’re looking at another 30%.

This bear has obviously felt more painful than the last one, especially so because things didn’t look very expensive from a PE10 point of view so I’ve been very early in suggesting that it’s not a bad time to get invested.

Oh, and how long more will the pain last? History suggests anywhere from 0-360 days. Either way, hang on for the ride!

I was pretty prescient as the post was dated 20 Jan 2016 while the market bottomed the very next day on 21 Jan 2016.

Unfortunately, of course, I was expecting the dour mood in the market to last anywhere from 0-360 days which meant that I only slowly bought into the market and by the time 2017 came around, I wasn’t fully invested and I felt that the market had run up too far.

The markets eventually topped out at close to 3,600 in June 2018 and never got back to that level. You could also argue that the more recent high is the 3,400 or so level made in mid-2019 but whichever level you pick, I think it’s right to say that we are way off those highs right now.

What’s next?

Those that have been following my blog for some time will know that I’ve been tracking the PE10 for the STI for a long time now and based on the PE10 measure, the STI in recent years has traded anywhere from 10.95x in Jan 2016 to 14.67x in May 2018.

Of course, the PE10 was lower than 10.95x towards the end of Jan 2016 but it’s close enough to give us a sense of how cheap things are and how cheap things could get.

I haven’t updated the PE10 since it isn’t the beginning of the month but the 10 year average earnings are currently about 260 which means that the current PE10 is just slightly over 10x earnings.

This is really the cheapest it has been for the data I have. Once again, the PE10 isn’t perfect and the data I have doesn’t track it perfectly but it gives us a good sense of the environment we’re in.

Could it get worse?

This is where some bear market history could be instructive.

Start dateEnd dateIndex startIndex end% changePeriod (days)EventSingapore Recession?
03/04/198515/4/1986690456.35-34%407US RecessionYes
08/11/198712/07/19871288.13595.77-54%118Black MondayNo
16/7/199010/11/19901304.49855.63-34%87US RecessionNo
17/2/199709/04/19982129.81805.04-62%564Asian Financial CrisisYes
16/4/201521/1/20163531.612532.7-28%281O&G blowoutNo
Singapore Bear Market History (updated until 2016)

So, if history is to be our guide, we need to ask ourselves which history looks similar to our situation? Is this more like 2016 or more like 2008?

If it’s 2015-16

If things are more like ’15-16, then expect the markets to drop at least another 10-15% from here and for the pain to last for another 5-6 months. I suppose the narrative in this case would be that no other bad news hits the markets and that the current narratives see the light at the end of the tunnel.

If it’s 2008-2009

First off, notice I didn’t say 2007. 2007 was the official top in the market, after which the market began a gradual slide amidst rumblings of trouble for financial institutions.

Then the panic hit in 2008 with the collapse of Lehman Brothers (September 2008) which followed the fall of Bear Stearns (March 2008). However, markets didn’t bottom until some 6 months later in March of 2009.

The difference between September 2008 and now is that markets had already fallen by some 50% from their levels in March 2008. Right now, markets have only fallen some 20+% which barely puts us in a bear market.

This scenario would probably play out if we start to see some sort of widespread credit event filter into the market as a result of the COVID-19 and OPEC+ situation.


Therefore, considering all scenarios. If I had to make a very, very rough guess, I would say that we should look for a bottom at around 1800-2200.

However, relative to even the GFC, valuations for the STI would be ridiculously cheap at those levels. Unfortunately, U.S markets aren’t cheap and that is driving a lot of market activity nowadays.

The thing that the market has going for it right now that is that markets have fallen so much in such a short period of time which almost makes it certain that we should see markets rebound hard in the coming weeks. In fact, the rebound might have already begun last Friday.

Regardless, watch the markets closely over the next 6-9 months. Chances like this don’t come around that often and don’t try to bottom fish because no matter how smart you are, you will probably never catch the market at the bottom.


The chance to get into markets at cheap valuations have come once again. It isn’t anywhere near as cheap as 2016 or 2009 yet but I’m sure we’ll get there.

However, things are probably only just getting started and will likely play out over the next 6-9 months.

WHAT A WEEK! Ladies and Gentlemen, Boys and Girls, if this is your introduction to a bear market, sit tight, buckle up and get ready for the ride.

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Some Helpful Datapoints in This Swift & Dreadful Market Fall (Investment Moats)

Kyith presents some good data points that may serve as a guide on where the market is headed.

How Long Does it Take to Make Your Money Back After a Bear Market? (A Wealth of Common Sense)

I’ll say more in a separate post but I think any one in their 30s-50s with a stable job is going to have the investment opportunity of a lifetime. It probably sucks though that many Singaporeans are busy paying off their housing and car loan and have nothing left over to invest.

Dead cat bounce, or buying opportunity of the decade? What happens next? (Financial Horse)

Like what FH says, I’m more worried that we’ve yet to see the worst of it because defaults haven’t hit the credit markets.

Been another wild week for the markets. Thankfully, we’re getting into the calm season as far as work is concerned.

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Feeling scared already? It’s not even a Bear Market yet! (Early Retirement Now)

I’m not sure about others but this is fairly early days if there is a major drop coming. If you can’t even take the volatility that we’ve seen in the markets the last few days, then you must be either (a) too young to remember how the markets were in ’08-09/ ’11-’12 or even ’15-16, or (b) you’re in the wrong game.

Markets will remain volatile as long as human incentives and behaviour are at stake. We can program the robots to do the tasks of trading and interpreting or even creating new signals but as long as the money belongs to humans, you can be sure that human behaviour will drive markets.

Why are young people so jelly about my Financial Independence? (Growing your tree of prosperity)

I’m not really sure why other people would be jealous of people who have been there and done that. Shouldn’t these people act as perfect examples of those who prove that what others think is impossible is actually possible?

I suspect that haters and disbelievers don’t want to confront the evidence in front of them because that would be an acknowledgement of their failure of imagination.

However, one should always be cautious. If you hear of someone getting rich quick through some clever scheme, the next thing you should ask for is evidence that it works. Typically, the scheme will have some stories of success so the next question to ask is “how likely is this scheme going to guarantee continued success?”

I suspect that it’s at this juncture that many investment/trading workshops out there will fail.

Xia suay: life insurance makes a person want to die isit? (Thoughts of a Cynical Investor)

My thoughts exactly.

The PAP government is pretty efficient and good when it comes to most things. Take, for example, how they’ve handled the Covid-19 issue in Singapore. Even if you are firmly in the opposition camp, you must give them credit for being able to marshal the necessary public resources in order to keep the situation in Singapore relatively contained.

However, whenever it comes to issues of social welfare, it seems that they have a imaginary bogeyman and to make matters worse, the figure in charge usually comes up with the lamest straw-man arguments.

What a week.

Biggest drop in terms of points and quickest to a correction for the U.S markets. But if you’ve been sitting on the sidelines (as I have), this is one of those rare chances that you get to get back in.

Of course, I wasn’t completely in cash but a fairly huge proportion of my portfolio was. I remember attending two talks- one by Howard Marks of Oaktree Capital when he was in Singapore in 2017 and also one by Professor Altman in early 2019.

Back then, both cautioned that things were starting to look frothy. Guess what? Despite the blip at end 2018, the markets went on a tear in 2019. And in the last two months, with stocks like Tesla going parabolic, you would be foolish to not expect markets to drop hard at some point. Covid-19 is just a very good excuse for the markets to gain some sobriety.

Having said that, in Singapore, value is starting to emerge at this price.

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5 Companies Make up 18% of the S&P 500. Should Investors Care? (A Wealth of Common Sense)

I think the bigger question is before these 5 horses left the gates, how many people would have picked these exact names?

Are We Cheap Yet? (Global Marco Monitor)

For investors in U.S markets, I am of the same opinion. Things are hardly dirt cheap yet.

What We Can Learn About The Bond-like Nature of REITs and Interest Rate Sensitivity During this Market Rout (Investment Moats)

I’m kind of shocked that there are people out there who might think that REITs are bond-like. Since REITs can increase the DPU over time and their prices can appreciate, why would anyone consider them to be bond-like?

Having said that, REITs are probably one of the best ways to get exposure to real estate. Traditional real estate investors only see more gains because of leverage.

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Thankfully, I don’t mean these kind of functions

Some weeks ago, I mentioned that I was going to do a piece of how individuals can get better at investing or finance by concentrating on function over form.

So I guess the first thing to answer is: what’s “Function over Form”?

Function over Form

I guess the simplest way of putting this would be to focus on the substance rather than the appearance of the subject. In other words, what the object/subject does rather than what it looks like.

For example, to most people, there is a stark difference between a Mercedes-Benz versus a Toyota. However, that is the form. The function, which is getting the person taking the car, from point A to point B.

Of course, people will argue that owning a Mercedes-Benz has other functions such as signalling to others that one is wealthy or it may provide a more comfortable drive (in my experience, this is marginal).

However, my argument is that those are secondary functions and the primary function of any vehicle is to get you safely from point A to point B. Once the focus shifts from primary to secondary functions, you know you’re in trouble as far as making sound financial decisions are concerned.

My epiphany

My realisation of how people lose sight of function in finance came when my wife and I met up with some financial advisors over the mortgage insurance that we currently are paying for.

In Singapore, regulation requires homeowners to take out mortgage insurance so that in the event something unfortunate happens to one of the mortgagees, there will be no problem paying off the mortgage. In a way, this makes sense because the government doesn’t want to have to deal with the scenario that the home has to be repossessed and the existing homeowner gets kicked out onto the streets.

The financial advisers we were meeting with suggested that we switch over to a term insurance that would cover us at a cheaper or somewhat similar rate for a longer period of time as the mortgage insurance only covered us until the end of the mortgage for an amount that was declining as our mortgage got smaller.

That made me realise that if the purpose of a mortgage insurance was to make sure that either my wife or I wouldn’t have trouble paying our mortgage should the other meet some unfortunate circumstances, then it doesn’t necessarily need to be branded as mortgage insurance. A term insurance for the length of the mortgage would have done the same job.

Unfortunately, these things aren’t so clear especially when the bank providing the mortgage suggests that you bundle the insurance in order to get a “good” rate on your mortgage.

Other areas of application

There are other areas of personal finance where it might also pay to pay attention to function over form.

(a) Whole life policies

For example, financial advisers in Singapore love to sell whole life policies on the pretext that on top of protection, you will get your money back after the duration of the policy whereas term policies merely expire.

The problem I have never heard any of these advisers point out that the above isn’t an apple to apple comparison. If we focus on function over form, we should realise that a whole life policy is effectively providing protection from unforeseen circumstances AND a savings plan.

Therefore, one should be comparing the premiums and returns on a whole life policies vs. the combination of a term policy and the returns on a fixed-income investment of a similar maturity.

For example, if the financial adviser is recommending a 30-year whole life policy, then the comparison should be made against buying a 30-year term policy and putting the difference in premiums paid into a fixed-income security of a similar maturity.

(b) Buying a house

Home ownership is one of the biggest myths that Singaporeans love to believe in and just like all myths, there are some truths to it but when EVERYONE believes that it’s the thing to do, you can bet your last dollar that it won’t work out for some people.

Buying a home effectively provides one function- a roof over your head. The alternative would be renting. However, buying a home for most people means taking out a mortgage and therefore, the total price paid for the home is higher than the sticker price. On top of that, there are associated costs of taxes, renovation and maintenance.

Of course, if you rent, we can assume that a rational landlord would have factored the costs of owning an apartment (such as interest, maintenance and other expenses) into your rent but this could be higher or lower depending on the state of the rental market at any point in time.

Therefore, the main question on whether to own a home or not, boils down to whether you think rents are likely to go up by much in the future. In short, what is your view on expected inflation?

I don’t want to go into too much detail on the tradeoffs because The Economist did a nice feature which you can watch here.

The main thing is that when you buy a home, it’s an expense. If you buy a home and treat it as an investment at the same time, you’ve effectively bought an investment in conjunction with a housing expense.

To conclude

You would do better at managing your finances if you break down the function of your investments and purchases, then no matter what the salespeople say, you won’t get hoodwinked.

Are we on the brink of a global pandemic or is the virus under control? Only time will tell. Meanwhile, your job as an investor is to ignore the noise and focus on what matters.

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The Actual Dividend Millionaires Of America (The Compound Investor)

Good example of when correlation doesn’t equal causation. However, the correlation between lack of dependents and getting rich isn’t exactly zero.

Income inequality in Singapore at lowest in almost two decades: SingStat (CNA)

Of course the stats don’t lie but the I don’t know why anyone hasn’t pointed out the biggest elephant in the room.

The median monthly household income which is close to $10,000 per month is high relative to many other countries, but at what cost? How many households would be able to reach the median if there was only one person working in the household?

No wonder Singaporeans aren’t reproducing.

The Biggest Problem in Finance? (A Wealth of Common Sense)

US example but broader points apply to Singapore as well.

Covid-19 is all the rage here in Singapore right now. But obviously the markets have been pretty much treating this as a non-event. I have quite a few more links this week if you have to stay home because of the virus.

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Great to Gone (Humble Dollar)

Great story. You may or may not agree with the diagnosis but you can most certainly feel for this guy. How many people can count their ancestors a few generations before as one of the wealthiest people in their country?

I personally witnessed this in my own life as the small business that my grandfather started has gone from start-up to stagnant to dead under the hands of the second generation.

Dollarisation would not save Argentina (Financial Times)

Great read for those into macroeconomic and monetary policy. It’s a subject very few appreciate and even fewer understand well. Unfortunately, it’s something that also affects many lives.

The Biggest Wealth Levers (A Wealth of Common Sense)

A great breakdown of what leads to wealth creation for individuals and households. The Millionaire Next Door is a classic and goes into too much detail (like the brand of cars and watches that most millionaires own) which can cause a loss of relevance in today’s context but the principles you can learn from there are timeless.

The Biggest Risk in Crypto Today (A Wealth of Common Sense)

Good points overall. And just like every financial scam out there, it preys on asymmetric information between those who understand finance and those who don’t.

However, finance isn’t rocket science. More people should be able to figure it out.

Why my purchase choices have the kiss of death (Tim Harford)

Really entertaining and funny read. I particularly like the phrase “harbinger of doom”. I must confess that I might be one of these people as well.

Be fearful when others are greedy, and be greedy when others are fearful.

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Retirement savings may best real estate returns in Singapore (The Straits Times)

A great reminder that, unlike the myths that some evil people out there are spreading, real estate returns are cyclical and dependent on leverage.

In Private Markets, Red Is the New Black (Enterprising Investor)

A good commentary on the current state of markets. VC money is banking on these startups becoming monopolies. However, as the post notes:

Theory teaches that monopolies eventually deliver what economists call supernormal profit. Yet, this new genre of entrepreneurial venture takes an awfully long time to become profitable. Years after their VC backers have exited, today’s start-ups are often still heavily loss-making. It took 12 years for Twitter to generate a net income. A decade after launching, Uber incurred an $8.5-billion loss in 2019 — the year of its IPO.

Earn Money Reading Financial Statements (The Wealthy Accountant)

I suspect the ability to read and analyse financial statements will become much more important in the future with the increased use of software to trawl through reported financials.

And the ability to read and analyse financial statements comes from a strong foundation in understanding how accounting works.