Dr. Tan Chong Koay on how to leverage a market crisis

Head cover on Black Monday crash post
This post is a summary of this video interview by Dr. Tan Chong Koay.

In this video, Dr. Tan Chong Koay talks about the importance of having the foresight to leverage each market crisis and turn them into an opportunity. To do this, research and experience are crucial. Before the market crashed, it would always have gone up for an extended period and sometimes to feverish levels.  It’s essential to study the market and be vigilant about when to start selling shares. It would be almost impossible to sell at the peak.  Hence, one must accept that his investment portfolio could underperform if he had sold shares and the market continues to rise.  Dr. Tan related his experience in 1987 when he started to sell shares for his clients sometime before the October 1987 crash, but the market continued to rise for about four months before it crashed.  An investor would have to be prepared to endure a period of underperformance, and he can never be sure how long that might be. 

Dr. Tan Chong Koay on the importance of research

Dr. Tan Chong Koay highlights that during a crisis, it’s important not to be reluctant to buy back the shares you have sold, especially if they are good companies. Research can help you identify which companies are good and monitor their fundamentals and price movements.  For those stocks whose prices have dropped so much, you should be ready to buy them back. The beauty of a market crisis is that both good and bad shares go down together, but good shares will recover much faster after the crash.  Buying good shares can help you turn the crisis into an opportunity and profit.

He distinguishes the 1998 Asian financial crisis from the Global Financial Crisis in 2008/2009 and the 2020 market situation. The Asian crisis only affected Asia, while the Global Financial Crisis in 2008/2009 and the 2020 market crash affected the US and the whole world. The world equity markets crashed in February 2020 as the Covid-19 pandemic unfolded.  In 2019, the DOW Jones had done very well, but the market was overvalued, and economic growth was slowing down. The most important sign that a potential crash might not be too far away is when the market keeps going up, but growth is not able to sustain.

Overall, turning a crisis into an opportunity and profit requires a strategic approach, research, and experience. By studying the market, identifying the right companies to invest in, and avoiding fully investing, you can mitigate your losses and take advantage of the opportunities that crises present. Dr. Tan Chong Koay also shared his experience in small-cap investments. While recognizing that investing in small caps entails higher risk, he believes that if you pick the right small caps, they can be dark horses and turn out to be superstars in your investment portfolio. However, the strategy of investing in small caps should be approached with caution, and research is crucial to identify the right small caps to invest in.

Fund management is not an easy job, but it can be richly rewarding. It requires a lot of research, experience, and foresight to make the right investments and mitigate losses during a market crash.

In summary, the video provides valuable insights into how a market crisis can become an opportunity and bring profits. The key takeaways are to study the market, be strategic in your investments, avoid fully investing, and be prepared to sell in a rising market and buy back good shares during a crisis.