Hold Cash To Exploit Market Turmoil


Did you have enough cash when the stock market plunged to its lowest points between late 2008 and early 2009? If you did, and you were confident enough to buy stocks, you would have made good money using the market cycle investing strategy.

Someone told me he had very much wanted to buy some cheap shares at around that time (blue chips were selling at below 50% off their peaks), but he did not have the money. He never believed in holding too much cash and had always spent the bulk of his income paying for insurance premiums, regular saving plans and loans. He thought it was “wasteful” to hold cash. The meagre interest that banks pay was too low in his opinion. But he’s having second thoughts now.

Another person I know saved up conscientiously, keeping the cash in low-interest savings accounts while waiting for the right time to enter the market. He didn’t mind the low interests as he knew he would make 10%, 20% or even 30% return averaged out over the years spent waiting for the right opportunity. Instead of giving money to “professional fund managers” to deliver some “projected 9% return” (which usually never materialize), he would rather manage his own investments in his own way.

Given the recent financial crisis in Europe, there may be a good chance that the stock market may tumble to attractive lows. It will possibly be market turmoil once again.

Do you have the cash to take advantage of it?


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  1. it’s unwise to keep too much cash. 2 reasons: interest rates are too low and there is too much printed money. with so much money floating around, inflationary pressures will be fast and furious. your cash will drastically lose its value in the near future.

  2. i disagree with unwise. inflation is very well controlled by our government here in singapore. unlike zimbabwe and certain latin america countries, singapore has a super excellent track record in keeping inflation very low. i agree with the author’s strategy of keeping cash while waiting for the right time to buy stocks and properties at favourable prices.

  3. I didn't sleep with Jack Neo on

    Well, define inflation. The countries you pointed out are experiencing something called hyperinflation and that’s basically where you to to the ATM machine to get toilet papers.

    Many countries define a basket of goods to measure inflation. Now some things in Singapore are stable in terms of price but for those countries who include rent in the basket of goods, you can’t really say that inflation is low in Singapore.

  4. Actually Singapore’s CPI basket does take into account imputed rent – given that the vast majority actually own as opposed to rent their homes, rental does not play a large role in the average person’s perception of his/her cost of living.

    To the people who raised the prospect of inflation eating away at your SGD returns – this is true, though it is also moderated by the <2% inflation rate historically. Admin is making a different point however. When you put aside a good sized amount of money in the bank for <0.3% p.a., you are able to trade-off the "loss" via inflation against the "gain" of having the option to act on sudden opportunities to buy stocks/ other investments when prices are depressed, which could see your subsequent return profile improve significantly. Higher perhaps than those that had stayed invested through the market cycles.

  5. I didn't sleep with Jack Neo on

    To hmm: Property prices have been increasing and hence imputed rent should increase as well. Perception does not matter in this case since you pointed out that the CPI does include imputed rent as a component. Additionally, it’s true that most people own, but unless they have ready cash on hand, they will be spending a larger percentage of their income on mortgage. The only way for CPI to remain stable in the face of increasing rent is for other goods in the basket to have lower prices or to lower the weight of the rent. This is beginning to sound like the United States CPI where they exclude (or have a low weight for) gas from CPI.

    I personally don’t think inflation is a bad thing IF income keeps up. Property prices go up 20%? No problem if your income is continuously adjusted up 13-15%, but this is clearly not happening.

  6. CPI rises as imputed rents rise – agreed. Imputed rents rise as property prices rise – qualified agreement given transmission lags, but direction is correct. Does inflation affect returns – yes it does.

    However, does Singapore historically have high inflation? – It’d be hard to say yes. There have been one-off spikes in inflation related to global developments in commodity prices like food and oil (recall 2008), but the historical average continues to be <2%.

    Sometimes, both CPI and income levels will over/ undershoot each other but the policy goal should be to strive for sustainable increases in both in the long term. Neither a 20% p.a. increase in property nor a 13 – 15% p.a. increase in incomes is sustainable in the medium term, so something will give sooner rather than later.

    The imbalance between things like property price increases and income levels argues for holding some capital on hand to take advantage of the (eventual) sharp price corrections as these are likelier to be good buying opportunities.

  7. sounds logical, but for some people the market may be too hard to resist. it may be irrational but it’s just too tempting.

  8. history have a weird way of repeating itself, not an exact replica but some striking similarities can be easily observed.

    this euro crisis will have a far bigger impact on Asia than most think. so do be careful with your investment decisions.

  9. sustainable properties on

    the current 20% property price rise was attributed to the high no of foreigners & PRs & also the low supply of public flats becos of BTO policies, etc.

    with new public hdb flats eg at redhill, also going 20% rise, high property prices are here to stay.

  10. I didn't sleep with Jack Neo on

    If the high prices are attributed to FOREIGNERS, what stops them from leaving if the economy goes south again. After all it happened a year ago.

    Property prices will continue to be high if and only if the so called “recovery” stays on track and Singapore is not the driver of that, it’s just a small boat in a heavy storm.

  11. Check this out:

    Chinese Stocks Retreat Abruptly From 2009 Gains

    SHANGHAI — After a spectacular rise last year, China’s stock market has plummeted on what analysts say are growing concerns about Europe’s debt crisis and expectations that Beijing is about to take strong action to slow the nation’s booming economy and prevent it from overheating.
    Shanghai’s stock index has fallen sharply as investors anticipate action to cool China’s economy.

    Investors are worried that Chinese exports to Europe will slow in the coming months and that government efforts to tame this country’s economy by tightening credit will hamper a wide array of industries, including the nation’s fast-growing real estate market.

    Although share prices in Shanghai rose modestly Tuesday after falling 5 percent Monday, the Shanghai composite index remains near its lowest level in a year, down about 21 percent this year.

    Stock prices have also fallen sharply over the last few months in Hong Kong and Shenzhen, largely because Beijing is expected to raise interest rates and tighten bank lending to help rein in inflation and soaring property prices.

    In Hong Kong, the Hang Seng index is down about 9 percent this year.

    China’s economy has been red hot since late 2009, when Beijing’s huge economic stimulus package began to kick in along with record lending by state-owned banks. In the first quarter of this year, China said its economy grew 11.9 percent.

    The aggressive lending helped revive China’s building boom and sent Chinese stock prices soaring. Last year, the Shanghai composite rose about 80 percent, making it the world’s best-performing major stock market.

    But now, with mixed signals about the prospects of a solid global recovery by the end of this year, analysts say Chinese investors have grown cautious.

    “This doesn’t really reflect what’s happening in the economy now, but it reflects what investors think will happen in the future,” said Zhao Xinge, an associate professor of finance at the China Europe International Business School in Shanghai. “The new policies could cool the real estate market. And the real estate market plays a major role in the economy — not just steel and construction companies, even home appliances.”

    Although China’s economy is still roaring, many economists expect growth to slow modestly in the latter part of this year, partly because of tighter monetary policies. And some warn of potentially bigger trouble ahead, particularly if exports to the United States and Europe — China’s two biggest markets — are weak, and government stimulus money dries up.

    Perhaps in anticipation, some investors are already pulling back from the stock market.

    “This was a cash-driven rally, and now liquidity’s being driven down a bit,” said Stephen Green, a Shanghai-based economist at the Standard Chartered Bank.

    Henry Cao, a professor of finance at the Cheung Kong Graduate School of Business, says some Chinese investors are already looking to invest overseas.

    “They’re hoping returns there might be better,” Professor Cao said.

    But other analysts caution that the Shanghai and Shenzhen stock markets are known for attracting speculators and, unlike the more stable Hang Seng index, are prone to volatile price swings.

    In late 2007, the Shanghai composite soared as high as 6,036 before collapsing in 2008 and falling to about 1,717. Only late in 2009 did it start sprinting forward again. The Shenzhen index is down about 17 percent this year.

    And yet, there is often a sense of optimism among investors in China, particularly in Shanghai, that any slowdown is just a breather before the next great stock rally.

    That was evident Saturday, when this city unveiled a huge bronze sculpture of a charging bull and placed it in the Bund financial square. The sculpture is a replica of the one located in New York, on Wall Street. Both were produced by the Italian-American artist Arturo di Modica.

  12. the high prices are attributed to the 2 IRs, YOG, F1 and of course our incorruptible government leaders. so, no, prices won’t drop. they’ll go up forever.

    end of sarcasm. seriously, singapore is such an open economy that any bad news in US or Europe or Asia will have negative impact on us.

    local factors like IRs and F1 have neglible effect on the markets. hate it when people keep citing local factors when trying to justify (or kid themselves) that prices will go up.

  13. well that means the govt will be hard pressed to rein in inflation especially before the elections is due. you already see more land sales. when more is done to fight inflation, you will see deflation in the form of lower property prices and a stock market correction. then it’s time to buy. i’m an optimistic contrarian.

  14. Surely you do not expect the government to risk deflation esp in the housing market when 80% of singaporeans have the majority of their wealth in their homes.

    They have been and will continue to create the artificial price floor that will set the note for the rest of the housing market.

    If 4roomers are sold at 300k and DBSS are sold at 600k, no wonder my D12s are sold at $1m and fetching rentals of almost $4k.

    One day.. one day when the new HDB launches are sold at <$100k again then I will agree that the market will correct and then again it may also mean a new regime and 2 generations of lost savings.

  15. Surely the prices will not keep increasing beyond what people can afford. There must be a balance between property prices and income levels.

  16. Surely Not: You are right, as long as the policy makers deem that the property prices are a x-multiplier of income and within their comfort range. That creates the balance.

    From what it seems now, policy makers seem to think that it is fine have a 35% DSR, and likely for a maximum loan tenure. That results in the price floors you see.

    From the other threads, we have been seeing calls to review HDB income requirements.. IMHO, be careful what we ask for. A higher income limit will almost definately push up HDB prices further and the lower range pte outskirts condos.

  17. As it is, 35% DSR is already on the high side. How much higher can it go? 40%? 50%? I seriously cannot imagine spending half my salary on housing loan repayments for the next 30 years. That’s just pure madness.

    Sure, Singaporeans are great savers, but with stagnant salaries and inflation increasing the cost of essentials, it is unlikely that DSR can be pushed up much further.

    So I’ve actually become quite bearish on Singapore property. I think we’ve reached the peak, simply because it is the peak of affordability.

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