• The Mediocre Investor

What to invest if you only got $2,000 now?

Is there an economy downturn?

Firstly, we can see that the global economy is heading towards an economic downturn with the major benchmarks in US (5 day performance: Dow -12.36% ; S&P 500 -11.49% ; Nasdaq -10;54%) notched their worst weekly declines since the 2008 financial crisis. On the other hand, the markets in Asia are also having a similar bearish sentiments (5 day performance: SCI -5.24%; STI -5.34%; Nikkei -9.59%).

Bull or Bear?

Depending on perspective and time duration - bullish in the long term and bearish in the short term.

Is it good or bad for the average investors like us?

With the wave of impacts to the economy due to the Corona-virus - Global supply chain disruption (Supply chain risk due to China), Currency risks for etc. This economy downturn should be worrying for the government as it will slow down the country growth and worrying for individuals due to the high transmission rate of the virus (higher than SARS). However, the answer to whether it is good/bad for the average investors is depends. I believe that with a greater risk (higher volatility in the market) generally comes with a greater returns (to compensate the risks) and leverage is a double-edged sword. Therefore, it is possible that investors will be able to reap returns from this economy downturn. On the other hand, with little knowledge on the market unlike the professionals, it is very difficult to navigate in an area full of unknowns and uncertainty, hence, the leverage working against us. However, having said that we should not be afraid of investing in the market (just don't leverage yet) especially when many good stocks (stocks with long term bull sentiments) are in bargain purchase - Buy low, Sell high principle.

To invest in Index or Individual stocks?

The answer is it really depends on your portfolio. Going back to the topic of this post, with a portfolio of $2,000, it will be wiser to invest in indexes due to lower commission costs incurred and greater diversification of portfolio with a stable return in a longer period (5 - years). On the other hand, if your investment is able to diminish the commission costs, then you can consider investing in individual stocks that generates a higher return than the average index. In addition, to make sure that the individual stocks can survive under stress scenario (recession) with a well balanced leverage and buffered liquidity as well.

Which market to invest in?

Following the "Buy low, Sell high" principle, generally all the markets are in their low now. However, to increase geographical diversification, investors can consider investing in various markets.

US Market

Worsen in market - Worsen of virus, increase in business disruptions

Re-bounce in market - Fed supporting market growth by lowering interest rate (lowering the rates make it cheaper for businesses to borrow and invest, hence leading to the blooming of businesses at a lower cost of borrowing)

Asia Market

Worsen in market - Worsen of virus, increase in business disruptions

Re-bounce in market - Government injecting funds into market growth.

Despite many stocks are cheaper now, we should always keep in mind a word of wisdom from Charlie Munger – Rather buy a good business at a fair price than a bad business at a cheap price. Therefore, we should always do our due diligence on the stocks/indexes that we are planning to invest in.

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