And whether you have been holding your positions before the market crash, or have been buying in since prices plummeted, here’s what you should do, according to Daryl Guppy, an international financial technical analysis expert and CEO of Guppytraders.com, and Teo Huan Zi, a senior equities specialist at Phillip Securities.

Know where your limits lie

Before putting your money into the stock market, you should know how much money you can afford to lose. This is why it is important to determine your personal risk assessment or growth appetite before entering the market.

“Every investor and trader should know where their stop-loss is located before, they open the position,” says Guppy.

A stop-loss refers to a price point where you sell your stocks at, to minimise your losses.

The way Guppy sees it, if investors do not know when to stop, “then they are simply gambling.”

Remain updated through the news

Investors looking for longer-term gains, and have no stop-loss levels, should keep track of the company’s financial status “through the news”, according to Phillip Securities’ Teo.

Staying updated ensures that investors will be able to “review if the counter is still able to achieve the long-term investment goals they have, should there be events affecting the counter’s business viability, sustainability, or ability to generate income,” says Teo.

“If the changes are significant, investors can consider switching to another investment, or cut their losses by selling their holdings,” he adds.

To sell, hold, or buy?

According to Teo, “assuming investors are looking at the same counter, clients would only sell to buy back later if they predict that the stock will drop further in the near term.”

The drop in prices may be “due to the supply and demand shocks from the Covid-19 situation, or due to restrictions imposed by the world governments,” he adds.

Guppy agrees. “Good traders sold when their stops were hit and took a small loss. They now have the cash available to buy [at a lower price] later when the market proves it can sustain a rebound,” he says.

However, “selling because of a percentage fall in the value of your portfolio is not an intelligent response. Each stock must be assessed on its merits as not all are impacted to the same degree,” he adds.

That said, if prices have dropped extensively, or if you have missed the mark, Guppy suggests investors “either have to take a substantially larger loss than planned, or decide if they will hold on and apply recovery strategies later.”

“Some people were not able to exit at a reasonable level because price may have gapped extensively… In this catastrophic collapse, the question applies to many open positions, not just those opened immediately prior to the dip,” he says.

To minimise losses, Guppy feels “some trades will need to be written off at a large loss. Some investments will take a large hit, but still deliver some profit.”

The way he sees it, “there is more flexibility in the response for stocks that remain in a profit. Steep losses should be realised in stocks that have a low probability of recovery.”

For Teo, he feels “investors might consider selling first and buying later when selling a counter that they are uncertain about, or place greater faith in another counter performing better in the long run.”

Is now a good time to buy more shares?

According to Guppy, “stocks that have sound business models, such as banks and insurers, will recover. Therefore, this can be used as an opportunity to add to the position.”

For investors who consider the recent market crash a good opportunity to sweep up stocks at a bargain, Teo feels “investors [who] are confident in the survival and performance of the company in the long term” should be “vested in the counter instead of timing the market”.

Investors who are already invested even before the market crash “can consider averaging down if the price falls much more than their first entry price, or just to hold to tide through these troubling months,” Teo adds.

See also: When is the best time to buy stocks?

Selling at a profit during the upturn

Investors looking to sell their stocks for a quick profit – if they bought them at a low price during the downturn – is doing what Guppy calls a “rally rebound trading strategy”.

There are two ways about it, according to Guppy. Firstly, investors should “sell on tight stop loss points to protect capital”, and secondly, investors should “sell on tight protect profits stops to capture profits”.

Currently, “the market is showing some rally behaviour, but it is not showing trend change behaviour. When trend change behaviour is confirmed, it makes sense to buy and trade [on] the continuation of the uptrend,” he adds.

Short-term vs long-term gains

“If investors purchased the stocks for the purpose of short-term price movements because they believe the counter is oversold or would benefit from the short-term situation, they could choose to quickly enter and exit the stock after the stock price moves in their favour,” says Teo.

Investors should also consider trading fees charged by their brokerages; the fees incurred may eat into your profit overall.

For value investors, or investors looking to hold their positions, Teo says they “should not rush to take profit”.

“The take profit mentality is relative to how investors determine their cut-loss level so as to avoid the situation. [This is where] investors earn small profits but suffer big losses due to the way they consider the take profit and cut-loss levels,” he adds.

That said, to maximise profits, Teo also believes “investors might wish to consider selling part of the long-term investment position if the price movement is significant, or when they believe that there might be short-term correction in price.”

“This will help to lock the profits earned and help to lower risks of any potential decline in the near term or to even cover for some of the other losses in other stocks in their portfolio,” he adds.

Don’t buy into the market if you’re unsure

It may be tempting to enter the market now due to low stock prices. However, that is ill-advised, if you don’t have a clear strategy.

For investors who bought into the market amidst falling prices, Guppy feels they are “no more than gamblers, if they entered this falling market without a well-defined stop-loss plan.”

According to Guppy, “they will continue to gamble so there is no point in suggesting they need to apply stop-loss methods and develop the discipline to act on stops.”

Phillip’s Teo believes there is an underlying strategy to investors who have bought into the current market.

“If investors have bought during the initial dip, it depends if they had planned to enter the market in phases and still have ‘bullets’ left to enter the market again in the event of further drop in prices,” he says.

Unlike Guppy’s assessment, Teo feels “investors can consider carrying out dollar cost average or investing at fixed intervals to prevent themselves from being affected by short term price movements that go against their positions or missing out on potential opportunities.”

Advice for investors with portfolios in various positions

There is no one-size-fits-all advice. Naturally, investors who are at various stages in life, with different risk profiles, and hold different positions, should be advised differently.

However, Phillips Securities’ Teo says, “as a whole, investors should consider if the portfolio has any fundamental changes periodically and upon events which cause large price movements within a short period of time. If the fundamentals of the portfolio remain sound, investors can maintain the portfolio.”

Investors should relook at their portfolio “if a segment of the portfolio grows much more than other segments”, and that they “can rebalance the portfolio to ensure the initial mix of investment assets remains and that their portfolio is sufficiently diversified.” Teo adds, “To ensure portfolio diversity, investors can consider various investment options such as stocks, bonds, and ETFs.”

Guppy believes investors “sitting on profits have more flexibility in their response because their capital is intact.”

“They can sell, go to cash, and use the cash to buy back in as the market shows a genuine recovery. However, this strategy was probably better executed closer to the beginning of the collapse,” he observes.

Investors who are down by 20% in their portfolios “cannot sit back and congratulate themselves”.

If anything, “they must understand the character of that 20% portfolio decline. Is it due to falls in speculative trades, or in investment style trades? If it’s due to speculative trades, then these losses are likely to continue to grow. Then, cutting losses would be a sound decision, because recovery in these stocks are likely to be slower than the general market,” Guppy adds.

For those who have made a loss in “investment style trades”, it doesn’t matter whether you are down by 20%. Guppy advises investors to evaluate the nature of the industry or the company’s business model. “Airlines, for instance, will recover. But it will be a long time before [they] return to pre-Covid demand,” he says. “Here, it makes sense to go to cash, then buy back for the recovery.”

Other industries, such as basic retail services, will “recover more quickly” than luxury services, Guppy says. “This makes the chances of quickly recovering for the loss much higher.”

However, he cautions that “not all retailers may recover”.

This is why investors should use “sound chart analysis techniques to identify potential support and rebound areas, and to verify the nature of the rally and rebound behaviour,” says Guppy. “The same decisions apply to investors sitting on a 50% portfolio loss.”

Teo agrees. “If the investor’s portfolio is down more than 50%, while it is a significant decline, investors should consider if the underlying investments are still sustainable and have long term growth prospects,” he says.

Due to Covid-19, industries such as the tourism and hospitality sectors have been directly and significantly impacted. According to Teo, investors should note that companies that have sufficient cash on hand to tide through this period of time, may benefit during the recovery phases. This is due to a “larger market share or profit potential” as other companies collapse during the crash.

Therefore, “it is important to evaluate why the portfolio has declined significantly and what are the long-term prospects of the portfolio before considering to liquidate part of the portfolio or rebalance or change the underlying investments,” Teo adds.

See also:

• What to do during a stock market crash
• When is the best time to buy stocks
• Where should investors turn as market carnage rages on amid pandemic panic?
• Is the coronavirus a bull market signal?
• Here’s what to do during a bear market

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