This post is summarized from a talk given by Dr. Tan Chong Koay in 2020.
First, the relationship between economic growth rate and stock market performance. Dr. Tan Chong Koay highlighted that the two are not always directly correlated. For example, he cited Malaysia’s economic growth rate as -7.4% in 1998, while the stock market hit its lowest point on September 1st. Malaysia reported economic growth of -10.2% for Q3 of 1998 and reported a -11.2% growth for Q4, but the KLCI chalked up a gain of over 100% in Q4 of the year.
The role of a good fund manager
Second, the crisis provides opportunities. When people are pessimistic, the market goes down, and stocks can go well below their intrinsic value. Dr. Tan Chong Koay emphasizes the importance of a fund manager taking advantage of market downturns to pick up undervalued shares and make money in the long term. A good fund manager can see opportunities when people are pessimistic and the market goes below its intrinsic value. By picking up undervalued shares, the fund manager can eventually sell them at a profit when the shares return to their normal value.
Third, the importance of choosing good companies with good fundamentals. Dr. Tan Chong Koay advocated looking for companies which have low gearing, strong and trustworthy management, and operate in an industry which will recover. Such companies will be able to recover from an economic and business downturn.
Finally, take a long-term view of investment. Dr. Tan considers that in a volatile market, it is crucial that investors be cautious and invest with long-term funds, and be able to accept temporary underperformance. This is because markets are volatile, and shares can sometimes underperform, even over a fairly extended period. Such investors can take advantage of market downturns to buy shares of good companies that remain in business and whose prices will recover in time.
In summary, the video provides insights into the relationship between economic growth rate and stock market performance and how a good fund manager can navigate the market during challenging times. By taking a diversified approach, investing long-term funds in good companies with low gearing and strong and trustworthy management, and being willing to tolerate temporary underperformance, investors can navigate the stock market with confidence, even during volatile times.