My 10 reflections & actions (what I bought) in this volatile market

1. Treasure the learning opportunity - this is a once in 10-year type of learning opportunity. Immerse yourself in the market, be observant, and get the feeling. Read news every day and pay attention to what you feel and how the market goes. You will be able to recognize the patterns next time (maybe 10 years later).

2. In a recession, the fair price of the highest quality of stocks will also drop. In theory, let's say even if their future cash flows are unchanged, the discount rate increase (driven by the market) causes NPV to drop in the DCF model. In reality, other stocks become more attractive (because of bigger drops), making investors to sell stocks haven't dropped to rebalance the portfolio and buy those bargains.

3. If you are an individual investor, utilize your advantage - flexibility. You are not mandated to hold a certain % of stocks, unlike institutional investors with a mandate. If you are sure the market will collapse, just sell.

4. Margin of safety matters – if you picked stocks well last year, your P&L might still be positive at this point.

5. Long-term capital matters particularly in this type of situation – you have peace of mind if you don’t need the invested money for the next 1 – 2 years. I’d make sure I even if I lose all my invested capital, I am still able to live.

6. There will be a recession soon. Do not expect V sharp reversion in the market. The virus will die in a few months. But do not imagine the economy to resume to normal immediately. I’d use the “chicken crossing the road” story of this video to explain. Spend 21 seconds to watch 1:09 – 1:30: https://youtu.be/iHzzSao6ypE?t=69. Coronavirus is the chicken and economies are the cars affected. Global economies and supply chains are just too interconnected like a car chain. One disruption can cause a big slow down.

7. Believing there will be a recession, I cashed out all my stock investments by 12th March (in total, at 4% loss compared to my entry points).

8. But I bought SABR @4.47 on 3rd April. I could be wrong and the stock price is likely to drop further (as I think there will be a recession). But the stock becomes very attractive as I answer a few key questions:

• Will the business survive? Yes - it has enough money to meet opex and debt obligations (not going bankrupt)
• Will the competition dynamics change? No - its competitive position (duopoly market structure) is not affected by the crisis. In fact, it made an acquisition last year that strengthened its competitive position (one of its clients even testified against the acquisition in an antitrust hearing)
• What is its business volume like after 2 - 3 years? Return to normal. Its business volume is driven primarily by travel activities, which will resume to normal after 2 – 3 years (people will take flights again by then)
• Any margin of safety? Yes - It already dropped by 80% (vs ~30% of the market)
• How can I be wrong? I may be too early to get in (as I think there will be a recession) But I just couldn’t help as I see bargains. I’d just buy more then as it drops further

9. Look at the forward PE ratio and the EV/EBITDA ratio of S&P 500. They are still way above the last recession. I think the market will continue to go lower. In a recession, corporate earnings drop and you have multiple compression – so the stock market will face double hit

10. The governments are not going to tell you there will be a recession. If they do, the market collapses immediately. Look at governments’ and companies’ actions for hints for how urgent and serious it is:

• the big stimulation plans
• UK central bank restricts leading banks from distributing dividends (even announced ones)
• massive bonus and salary cut by companies (maybe I was young in last recession and couldn't recall correctly, I did not recall companies actioned that quickly)

Happy to exchange thoughts - please comments below if any.

Caveat: I am not an expert. I am just a beginner grabbing this learning opportunity to improve myself. And I could and likely to be completely wrong. But being right / wrong now is less important. I care much more about what I can learn from this crisis.