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Buffett thinks it is going to get worse.

Thursday, May 14, 2020

This is another blog that started out as a reply to a reader's comment: HERE.

During the Global Financial Crisis (GFC), I believe the lowest price I paid for AIMS APAC REIT (then AIMS AMP Capital Industrial REIT) was about 17c a unit. 

Or was it 13c a unit?

Anyway, at 17c a unit, after a 5 to 1 consolidation that took place some time later, that would be 85c a unit.

If it was 13c a unit, that would be 65c a unit.

Things were pretty bad during the GFC.

Back then, AA REIT was surely trading at a big discount to NAV and there would have been some negative rental reversions too.

However, now, things look like they are worse than what they were during the GFC.

During the GFC, we didn't have forced shutdown of economies which resulted in record unemployment.

The kind of monetary rescue packages thrown at the economy by the central banks in response to this crisis dwarf whatever they did during the GFC.

I know some countries call them "stimulus" packages but they are really "rescue" packages.

There is nothing to stimulate but plenty to rescue.






A couple of months ago, in a blog, I said I paid attention when PM Lee said that the negative effects of this crisis could be worse than what we saw during the GFC.

I am more cautious during this stock market crash compared to the crash caused by the GFC.

With the ramifications that this pandemic has and we have yet to discover all of them, I feel that it isn't a bad thing for anyone to be more cautious with money this time round.

There is no certainty that it will happen but, increasingly, chances are a second wave or even a third wave of COVID-19 might hit us.

More shutdowns to come?

Maybe.

In a recent blog, I said I watched a documentary on the Spanish flu and how that health crisis took two years to resolve as the virus attacked in waves.

The Spanish flu crisis changed the way people behaved for a long time and it was bad news for the economy for a long time.

During the GFC, people were not dropping like flies like they were during the Spanish flu crisis and also this crisis.

This crisis caused by COVID-19 will not only be remembered for a long time but it will also change the way people behave for a long time to come.

For many businesses, more enduring behavioral changes caused by the COVID-19 crisis will continue to be negative for them and the effects will ripple through the economy. 






Mr. Market could sink again into a depression as economies reopen to a new reality of probably reduced confidence and much slower growth.

Things could get worse before they get better.

When we have a safe and effective vaccine, things should get better.

Having said this, to get back to where we were before the pandemic hit us would surely take quite a bit of time.

With that belief, I am still staying invested, adding to my investments from time to time but not throwing in everything including the kitchen sink.

There could come a time when I throw in everything BUT the kitchen sink but even if I don't do so, it is OK to me.

I rather make sure that I am ready for a relatively long and bumpy ride which could be in store for us in the weeks or months ahead.






I would like to end this blog by sharing a video I found on some things Warren Buffett said at Berkshire Hathaway's 2020 annual meeting for shareholders.

Why has Warren Buffett not bought anything yet during this market crash?

Take a leaf from Warren Buffett's book.

Have a war chest or two ready.

Also, make sure to have an emergency fund and an adequate one at that.

You might want to start watching from 4:48.







"Federal Reserve Chair Jerome Powell says the U.S. economy faces unprecedented downside risks." 13 May 2020.

Related posts:
1. Market sways between hope and worry.
2. Survivability and opportunity in times of distress.

14 comments:

Bananamint said...

Hello AK,

Does look like second wave of drop is coming too.. But this recession seems more like a selective recession - technologies and bio tech are doing well (though I dont have good enough knowledge to invest in biotech). And probably utilities, cause we're all staying home more often. Transfer of profits to these sectors XD

Anyways, please keep safe!

Unknown said...

Dear AK

WB ever wrong before. He could be wrong this time. The spanish one was bad as that time medicine was not advance and so it was deadly. But this corona virus is contagious but not deadly,as one doctor told me, What make it dangerous is the way it spread and can be carry by those who already got it and appear well and spread it to other near him..thus the 14 days quarantine to ensure suspect do not have this virus. The death rate number speak for itself when compare to other flu show that it is not deadly.

Yes, I do agree that this lockdown or cct breaker do have impart on the economy, but with fed stimulus and combine CB effort ,, we could very well avoid another recession.

Most countries got to open up,, we cannot wait till virus totally gone,if not we be dead before the virus. many already jobless, unemployed and hungry..

I think it is not a matter of choice. Even our Sillypore also going to lift some restriction soon. I think work on both side,, one try to control and at the same time open up the economy slowly, I wish the govt success in doing this. I wish Donald Trump success too. If US suffer the rest of us suffer even more,

May God protect us from virus. May the virus leave us alone.

God bless you.

Thanks for sharing.

victor

AK71 said...

Hi Bananamint,

Each recession is different and some companies can do better than others in each recession.

However, the broad effects of recessions are the same.

Yes, everyone, stay safe! :)

AK71 said...

Hi Victor,

Buffett has been wrong before too, of course.

However, we want to remember that he has been right more often than he has been wrong.

During the GFC, when some stock price plunged and I bought aggressively, it was because I couldn't see the business doing so badly as to justify the steep decline in its stock price.

What about now?

I am not as sure now as I was during the GFC because the negatives now are much more overwhelming even by GFC standards.

Having said this, I always say to be pragmatic and not be overly pessimistic or overly optimistic.

So, I am staying invested and waiting for clearer signals before buying more.

D said...

Hi AK,

Thanks for providing regular updates and blogs. In this unprecedented time, it is good to read what others' thoughts on the market from time to time. Your views have always been quite balanced in my opinion, like you said you are pragmatic.

Also thanks for replying to my several questions in the past. Wishing you best of health & wealth.

AK71 said...

Hi D,

For a crazy fellow who talks to himself all the time to stay balanced is quite a feat. ;p

I hope that my answers to your questions in the past were more enlightening than confusing.

Thanks for taking the time to comment. :)

SgFire said...

Hi Ak

appreciate your blog in replying to my questions. In times like this, lockdown, circuit breaker, everything standstill just made one to talk to ownself like you did. Mentally going sideway like the market now. Driving one nuts.

I hope 1 June come quickly so that we can cheong to the malls and start feasting like a beast. I like the fact that it is not important to try to deploy cash available over having cash on hand to pay for essential services like haircut.

It is more important to get back to normal life right now. Kam pei !

Howard said...

Heloo AK, so far most people hasn't turned into CCB amid CB so that's a positive i guess.

Anyway, aside from AAReit, what do you think about Accordia in the current climate? April tee-off number was pretty bad.

Cheers and don't stay too long in Neverland.

AK71 said...

Hi SgFire,

Surely, it is about getting our priorities right.

I also wish that life would go back to what it was like before the circuit breaker but, to be quite realistic, even after the circuit breaker ends, life probably would not be the same.

Things have changed and will remain changed until we have access to a safe and effective vaccine against COVID-19.

AK71 said...

Hi Howard,

Well, not everyone is comfortable with staying indoors for a prolonged period of time like AK the Shut In. ;p

As for Accordia Golf Trust, it is to be expected and I remember replying to someone on this before.

OK, found it: My reply to Shen on Accordia Golf Trust.

Siew Mun said...

He is holding to more cash by selling equities. Looks like he pessimistic in this uncertain environment.
https://markets.businessinsider.com/news/stocks/warren-buffett-berkshire-hathaway-cut-goldman-sachs-stake-84-percent-2020-5-1029207920

AK71 said...

Hi Siew Mun,

I cannot remember another stock market crash when Buffett was selling stocks and not buying stocks.

He famously said that he liked buying stocks and he was always buying something.

Things have changed.

AK71 said...

May.18 --

Howard Marks, co-founder and co-chairman at Oaktree Capital, the largest investor in distressed securities worldwide, discuses Federal Reserve intervention in response to the coronavirus pandemic, and warns that distress will sweep through credit markets when the Fed’s support inevitably recedes.

He spoke exclusively with Bloomberg's Erik Schatzker from Los Angeles on “Bloomberg Front Row.”

Watch:
Interview with Howard Marks.

AK71 said...

The shelter-in-place economy is temporary, but it will have a lasting impact on consumer behavior.

Retail landscape is changing and more people are working from home.

Jim Cramer: "The new normal is not the old normal."

https://www.youtube.com/watch?v=cdugtHGGmS0

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