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Newsletter

2019 4th Edition (Other Editions)

Investing in times of crisis Recent political environment and social unrest have caused significant disruptions to Hong Kong tourism and consumption-related industries. Hong Kong’s economy shrinks 0.4% in the second quarter, signalling a recession. The government economist said this contraction marked the weakest economic condition ever since 2009. There is no doubt that Hong Kong is facing an economic downturn. Investment Psychology In times of crisis, people tend to reduce expenses and investment as they are afraid of further losses in times of economic downturn. People tend to avoid loses than to realise gains. While in times of economic growth, people tend to spend more and invest more due to the prosperous economic environment at the moment. And thus, it is not difficult to predict that many people would not invest in the times of economic downturn. Instead, they would rather invest during the time of peak as they perceive it as more “profitable”. However, this mental perception is irrational and contradictory in nature with the key to investment “buy low sell high”. The irrational mindset of fearing to lose has flooded in the human mind, urging human-beings to make contradictory decisions that would most likely lead to loss of money.

How to conquer the misbehaviour and earn money in times of crisis-The Norway investment Model Norway model is the investment strategy applied by the largest sovereign wealth fund in the world (GPFG), with the market value of 8,256 billion Norwegian Krone at the end of 2018. In terms of financial performance, GPFG has maintained a high return rate and demonstrated strong recovery ability after the financial crisis as it reduces risks through diversification. To be simple, the model split one’s fund into risky investments with potential robust return and safe investment with guaranteed return equally. In the long run, the value of the risky investments fluctuates, depending on the economy. The weighting between the two kinds of investments has been changed. According to GPFG, rebalancing has to be done, meaning that the weighting of the fund has to be adjusted by trading to a fixed ratio set at the beginning. By doing so, in times of recession where the market price is low, investors would buy according to the weighting while in times of recovery where the market price is low, investors would sell to rebalance back to the preset weightings. It aligns with the golden rule of investing without being triggered by the irrational mental impulse. If you want to have a prudence asset management and would like to have a financial advisor to guide you through, feel free to contact me.