1Q 2020 passive income: COVID-19 disaster.

Unless new to my blog, everybody knows that AK is investing for income.

What this means is that AK is more concerned with the ability of his investments to generate income for him on a regular basis than the price movements of those investments in the stock market.

Of course, for this strategy to work, first, we have to ensure that a potential investment is a bona fide income generating asset and not a scam.

For an example of a scam, see:

$71,000 alternative or bogus investment?

Many people are calling Eagle Hospitality Trust a scam now as well. 

The other important thing with investing for income is to determine whether the entity has the ability and the willingness to generate income and share this income with investors.

If we are not investing with borrowed money or money we need for some other purposes down the road, whether in a bull or a bear market, if we invest in good income generating businesses, everything else being equal, most likely, our financial health will improve over time.

This is very important to remember because we do not want to have to liquidate our investments during a time of crisis like now.

This is very important to remember because investing for income is mostly not about getting rich quickly and is more about getting rich slowly but surely.

I know that many people are hurting financially now because of this COVID-19 disaster and many are looking for advice.

However, remember, I don't give advice here in ASSI.

I am just talking to myself here.

Now, although I feel certain that we will overcome the COVID-19 crisis like we did with SARS 17 years ago, we should take the warning signs seriously.

The COVID-19 crisis is similar to the SARS crisis but it is not the SARS crisis.

Same, same but different.

The COVID-19 crisis could take a much longer time to run its course compared to the SARS crisis.

There is no doubt by now that this crisis is going to create a global recession.

The consensus is that this global recession will be even more severe than the recession caused by the Global Financial Crisis (GFC).

So, although there is a chance of a V shape recovery, it is more likely that we will get a U shape recovery.

Pray that we do not get a L shape recovery which PM Lee mentioned in a recent interview as that would be more like an economic depression than a recession.

Let this sink in for a moment.

Deep breaths.

What are we to do in response?

I believe that how we behave should depend on whether we have the following:

1. Emergency fund

and 

2. War chest.

I know that there are people who do not believe in having an emergency fund but we all know that many people lose their jobs in a recession.

If we do not have an emergency fund, we should not be thinking about investing in the stock market even in times like this.

More so in times like this.

Banks are fair weather friends, whatever their advertisements might say to the contrary.

We could well see a credit crunch when, for fear of losing money, banks sharply curtail the lending of money.

It could happen and, of course, it has happened before.

People who do not believe in having an emergency fund, good luck to them.

People who do not believe in having an emergency fund and conduct courses to teach others not to have one, shame on them.

So, how much money should we have in an emergency fund?

See:
How big an emergency fund?

As for those of us who have an emergency fund but who do not have a war chest, think twice about using the emergency fund to invest in the stock market.

Heard of bull traps?

No, I am not thinking of big holes in the ground dug by some hunters in the Stone Age.

Anyway, if we fall into this category, in fact, we should take some time to look at whether our emergency fund is sufficient for what might come.

I can almost hear some people going:

"Oh, but we might make money if we use the emergency fund to invest with?"

Remember, money not made is not the same as money lost.

If we need the money and it is not there, we might lose more than just money.

I say peace of mind is priceless.

What is the price tag of sanity?

"Never risk what we have and need for what we don't have and don't need." - Warren Buffett

See:
I do not believe in emergency funds.






If you are new to my blog or if you don't know or if you don't remember, you might want to read this blog:

Survivability and opportunity in times of distress. ("E-book")

Some might think it is too late for them.

Well, what's done is done or, for some, what's not done is done.

Choose whether to start doing the right things right now or to do nothing.

We have a choice.

Choose carefully.

Right?

I know that most of you are here for the numbers but I just had to get all of that off my chest.

I feel that it is important enough to do so.

OK, now that I have done it, the numbers.

My 1Q 2020 passive income:

S$ 24,668.56






Although it seems like I have a robust passive income stream, the COVID-19 crisis will very likely compromise the income generating ability of my investments.

The longer the crisis lasts, the more severe the impact will be.

We should be prepared for a reduction or a suspension of dividend payout in some instances.

Some might remember my explanation as to why despite having the passive income that I have, I still maintain an emergency fund.

Armageddon is not just the name of a movie.

People who are marginally financially free and who have retired from employment might have to go back to work.

In an environment where unemployment is most likely to be elevated, it won't be easy.





If we do get a U shape recovery, the bottoming process in the stock market is likely to be a bumpy one that might go on for several months.

We could be seeing the start of this bottoming process now although it would not surprise me to see prices going lower from here.

I have been nibbling at stocks and might continue to do so.

However, I won't be buying in a big way until I have greater clarity.

To be sure, we must be prepared for more turbulence to come.

If we are heavily leveraged, beware.

"We never want to count on the kindness of strangers in order to meet tomorrow’s obligations." -Warren Buffett

Till the next blog, be socially responsible and help keep us all safe.

We are #SGUnited.


Watch PM Lee's interview with CNN on the battle against COVID-19:






Recently published:
1. COVID-19 defeated already?
2. COVID-19 defeated in 2021?
3. Eagle Hospitality Trust: Extinction?

COVID-19 defeated by Mr. Market already?

This blog is in response to a reader's comment: HERE.

AK says:

Hi D,

Well, like you said, Mr. Market can stay irrational for a very long time.

I always say that there is no accounting for Mr. Market's mood swings. ;p

As for what some might think of as a stock market recovery in the last few days, I think it is too early to call it that.

It will be more accurate to call it a strong rebound from a drastic and rapid plunge.

Technically, at least for the stocks which I am monitoring, the downtrends are still intact.

Also, I do not see any significant increase in volume as those stock prices rose in the last few days.






Having said this, I am not saying that it is definitely a trap for the buy and hold investors.

TA is about probability after all and not certainty.

For sure, more competent traders would have made some money in this instance.

I don't trade very much anymore as my energy is mostly spent elsewhere in another world.

Even so, I have nibbled at some stocks and increased my investments in some businesses which I am sure will continue to generate a meaningful income for me.






However, I have not unlocked my war chests to buy a lot more. 

PM Lee said that this COVID-19 crisis is going to be worse than SARS and possibly even the Global Financial Crisis.

I believe that this is the case.

I am looking at the situation and also the charts not in terms of days but more in terms of weeks and months.

Of course, I hope the crisis won't last a year or two.

Heavens forbid.

If this is going to be worse than SARS and the Global Financial Crisis, then, there is a high chance that we have not seen Mr. Market in the depths of his depression yet.

Of course, it is important to remember that AK is just talking to himself here in ASSI.

Everyone should have his or her own plan.





If you have not done so, watch this video from the Prime Minister's Office which was released earlier today.

If you are only interested in when and how PM Lee thinks Singapore's economy is going to recover, fast forward to 7:15 in the video.



"... the waves will take many, many months or more than a year or two to settle..." PM Lee.

Remember, wash our hands more frequently, practice social distancing and behave in a responsible manner.

We are #SGUnited.





Related post:
COVID-19 defeated by Mr. Market in 2021 or so the IMF says.