WEBVTT - What stocks should I buy during a recession? 0:00:00.270 --> 0:00:02.599 You're listening to a CNA podcast 0:00:04.420 --> 0:00:07.590 is the recession really coming? Yes or no. I think so. 0:00:07.599 --> 0:00:11.329 Three words, when you think of a looming recession, buy 0:00:11.340 --> 0:00:15.489 more stocks, describe recession proof stocks in a single sentence. 0:00:15.659 --> 0:00:18.200 There are stable business who can still perform during a 0:00:18.209 --> 0:00:21.549 recession and their share price is likely to lose less 0:00:21.559 --> 0:00:22.610 if the market is crashing 0:00:22.684 --> 0:00:28.125 top three types of stocks to invest in during a downturn, supermarkets, 0:00:28.135 --> 0:00:33.205 health care, education, investing mistakes to avoid in a recession, 0:00:33.215 --> 0:00:36.974 move your money into safe building assets, principle guaranteed. But 0:00:36.985 --> 0:00:40.275 then miss the run when the market start to be 0:00:40.284 --> 0:00:40.875 bullish again, 0:00:43.439 --> 0:00:47.700 the big R word it's been uttered so many times 0:00:47.709 --> 0:00:52.470 this year, striking fear even in the most seasoned economist. 0:00:52.479 --> 0:00:57.000 But while a recession hasn't quite yet arrived, perhaps it's 0:00:57.009 --> 0:01:00.849 not too late to look at adding some resilience instead 0:01:00.860 --> 0:01:04.489 to your portfolio. Hi, I'm Andrea Heng. And this is 0:01:04.500 --> 0:01:06.430 the Money Talks podcast where we talk about 0:01:06.510 --> 0:01:09.980 your money and there are many wonderful things you can 0:01:09.989 --> 0:01:13.000 do with it. So previously, we asked ourselves, is it 0:01:13.010 --> 0:01:16.400 still worth putting your money in Singapore's treasury bills and 0:01:16.410 --> 0:01:19.169 savings bonds this year? Well, if you want to know 0:01:19.180 --> 0:01:22.089 the answer. Look out for that episode on Spotify or 0:01:22.099 --> 0:01:25.580 Google podcast. Just search money talks and you'll be on 0:01:25.589 --> 0:01:29.500 the right track. But back to the dreaded R word recession, 0:01:29.940 --> 0:01:31.989 it was a buzzword at the start of the year 0:01:32.000 --> 0:01:35.629 when the world was dealing with a number of unfortunate events, 0:01:35.639 --> 0:01:41.139 staggering inflation, sky high interest rates and geopolitical conflict, all 0:01:41.150 --> 0:01:46.160 of which are sadly ongoing even today. So we're asking 0:01:46.389 --> 0:01:49.620 how can we protect ourselves from a recession if it 0:01:49.629 --> 0:01:51.510 does arrive other changes, we 0:01:51.595 --> 0:01:53.514 we need to make to our stock portfolio so that 0:01:53.525 --> 0:01:56.684 the sting will be less painful here to chart a 0:01:56.694 --> 0:02:00.665 path for us. Is Alvin Chow CEO and founder of 0:02:00.675 --> 0:02:03.525 Doctor Wealth. Thanks for joining us on money talks. Alvin, 0:02:03.535 --> 0:02:07.105 thanks Andrea, thanks for having me. Ok. So in Singapore, 0:02:07.455 --> 0:02:11.625 we understand that a technical recession is two consecutive quarters 0:02:11.633 --> 0:02:13.205 of GDP decline. 0:02:13.679 --> 0:02:17.168 But outside this definition, what are the conditions of a 0:02:17.179 --> 0:02:20.809 recession we need to take notice of as an investor, 0:02:20.910 --> 0:02:23.369 what are the warning signs we should be looking out for? 0:02:23.479 --> 0:02:26.449 So as you already pointed out, the Singapore economy did 0:02:26.460 --> 0:02:29.449 avoided a technical recession because the last quarter, the second 0:02:29.460 --> 0:02:32.289 quarter was actually a positive GDP growth. And I would 0:02:32.300 --> 0:02:35.669 say that looking at a bigger economy, the US economy 0:02:35.679 --> 0:02:37.399 is definitely the one that we need to watch out 0:02:37.410 --> 0:02:39.519 for because it affects the rest of the world, right? 0:02:39.529 --> 0:02:40.910 Being the biggest economy in the world. 0:02:41.220 --> 0:02:44.649 And for the US side, actually, the economy seems a 0:02:44.660 --> 0:02:49.149 lot stronger than predicted. They have two consecutive quarters of 0:02:49.160 --> 0:02:51.229 positive GDP growth this year so far. 0:02:51.559 --> 0:02:55.860 And it seems like the US economy is absorbing the 0:02:55.869 --> 0:02:58.020 high interest rate rather well, right? To a lot of 0:02:58.029 --> 0:03:00.500 people surprise. But one of the key signs that I 0:03:00.508 --> 0:03:02.199 look out for is actually this thing called the U 0:03:02.399 --> 0:03:06.399 curve inversion. So this curve inversion is basically taking the 0:03:06.410 --> 0:03:09.610 10 year bond you minus away the two year bond 0:03:09.619 --> 0:03:12.259 you OK? And what does that do? So by right, 0:03:12.270 --> 0:03:14.220 a longer 10 year bond should give you a high 0:03:14.229 --> 0:03:16.198 interest rate just like if you buy a 10 year bond, 0:03:16.210 --> 0:03:17.990 you expect a high interest rate and a two year bond, right? 0:03:18.330 --> 0:03:19.679 So which means a 10 year 0:03:19.815 --> 0:03:21.195 and it's a two year Y, it should be a 0:03:21.205 --> 0:03:24.175 positive number. Oh yeah, yeah. Yeah. Yeah, that makes sense. OK. 0:03:24.184 --> 0:03:27.074 So when the U curve inverts, that means that the 0:03:27.085 --> 0:03:29.404 10 year Y is actually lower than the two year Y, 0:03:30.294 --> 0:03:32.734 that is where you get a negative number. And that's 0:03:32.744 --> 0:03:36.625 what the economists term as a U curve inversion. OK. 0:03:36.634 --> 0:03:40.945 And historically, this indicator, whenever the U curve inverts recession 0:03:40.955 --> 0:03:43.524 is around the corner. Oh and where are we at? 0:03:43.535 --> 0:03:46.274 If you're looking at the U curve now, it has 0:03:46.285 --> 0:03:47.985 been inverted for more than a year. 0:03:48.279 --> 0:03:50.699 OK. So one thing is that it's not immediate, it 0:03:50.710 --> 0:03:52.690 doesn't mean that all the moment that this U curve 0:03:52.699 --> 0:03:56.169 inverts the recession is going to happen tomorrow. Ok. It doesn't, 0:03:56.179 --> 0:03:58.360 there is a delay, it can be one year, two years. 0:03:58.369 --> 0:04:00.729 So we are not exactly out of the woods yet, 0:04:00.740 --> 0:04:03.929 even though the economy looks ok now, but we wouldn't 0:04:03.940 --> 0:04:06.229 know for the second half of the year and probably 0:04:06.240 --> 0:04:09.130 first of the next year, we may see a recession. 0:04:09.139 --> 0:04:11.580 So it's still in the cuts. So it may not 0:04:11.589 --> 0:04:13.270 signal a recession 0:04:13.363 --> 0:04:18.393 immediately, but it may also not signal a recovery immediately. Yes. Ok. 0:04:18.433 --> 0:04:20.803 And there can be four signal as well. It is 0:04:20.812 --> 0:04:23.893 not 100%. But I would say that based on the 0:04:23.903 --> 0:04:26.983 historical track record of this U curve inversion, it's definitely 0:04:26.993 --> 0:04:29.041 more than 50% accurate. Ok. So there is still a 0:04:29.053 --> 0:04:32.653 higher chance that recession may happen. Ok. May that's the 0:04:32.662 --> 0:04:38.291 key operative word. So while there may not be a recession, yet, 0:04:38.446 --> 0:04:41.265 markets have deteriorated around the world, I mean, we have 0:04:41.276 --> 0:04:44.496 seen it, it's a bloodbath in some cases and I 0:04:44.505 --> 0:04:47.816 guess that tends to mean cheaper stocks or is that 0:04:47.825 --> 0:04:50.604 too simplistic a a way to look at it. There 0:04:50.615 --> 0:04:54.025 are a lot more complication if we look into the details. 0:04:54.145 --> 0:04:58.096 So for example, definitely 2022 was a bad year for 0:04:58.105 --> 0:05:01.335 stocks all around the world. Even in the US, it crashed, 0:05:01.346 --> 0:05:03.045 especially for tech, 0:05:03.528 --> 0:05:06.498 especially for tech. Those that were sensitive to interest rates 0:05:06.509 --> 0:05:09.669 were all getting hammered. And this year is a little 0:05:09.678 --> 0:05:12.789 bit different because the US stocks have been doing pretty well. 0:05:12.799 --> 0:05:16.928 Even the recent correction S and P 500 index is 0:05:16.938 --> 0:05:20.079 still up about 16% year to date. That's impressive. Yeah, 0:05:20.109 --> 0:05:23.368 and NASDAQ is probably up more than 20% year to date. So, 0:05:23.378 --> 0:05:26.218 I guess a lot of people didn't expect that to happen, 0:05:26.368 --> 0:05:28.519 but we just back off a very high interest rate. 0:05:28.611 --> 0:05:30.601 It doesn't seem like in the near future, the Federal 0:05:30.611 --> 0:05:32.992 Reserve is going to cut interest rate any time soon, right? 0:05:33.002 --> 0:05:37.302 So it is surprising that the market has went up. Ok. 0:05:37.312 --> 0:05:39.902 And I think this is what most people find it 0:05:39.911 --> 0:05:43.661 difficult to understand. OK. If let's say, yeah, exactly. Right. 0:05:43.671 --> 0:05:46.261 So if the economic condition doesn't look that good, why 0:05:46.272 --> 0:05:49.381 is the stock market going up? So historically, again, there 0:05:49.391 --> 0:05:53.011 isn't much correlation between the stock market and the economy, right? 0:05:53.022 --> 0:05:53.561 It sounds like 0:05:53.695 --> 0:05:58.454 a bit weird, right? But the correlation is almost zero really? OK. 0:05:58.464 --> 0:06:01.363 Explain this to me. And the reason is because the 0:06:01.375 --> 0:06:05.475 stock market is usually a forward looking system kind of 0:06:05.484 --> 0:06:09.505 like a future. Yeah, you will price in future expectation earlier. OK. 0:06:09.515 --> 0:06:12.445 So if you expect a recession is coming, so people 0:06:12.454 --> 0:06:16.635 will sell stocks now there's this time lag, right? And 0:06:16.644 --> 0:06:18.354 the stock market is the indicator 0:06:19.079 --> 0:06:21.190 and if we look at the economic indicators right, it's 0:06:21.200 --> 0:06:24.890 usually lagging and delayed. For example, in August, we only 0:06:24.899 --> 0:06:27.299 get the July numbers. Yes, somebody need to compile the 0:06:27.309 --> 0:06:30.010 report and then the boss need to because we haven't 0:06:30.019 --> 0:06:33.609 implemented A I into our compilation system. And the moment 0:06:33.619 --> 0:06:36.130 they released it, there's already water under the rich it 0:06:36.140 --> 0:06:39.049 past month. Ok. But the stock market has already adjusted 0:06:39.059 --> 0:06:41.570 by then, right? So that is why there isn't a 0:06:41.579 --> 0:06:43.230 very strong correlation. It's not that 0:06:43.295 --> 0:06:45.626 they have totally no relation there is. It's just that 0:06:45.635 --> 0:06:48.505 the stock market is front running all this information, got it. 0:06:48.515 --> 0:06:52.335 So it's anticipatory rather than reactive, you're saying? So we 0:06:52.346 --> 0:06:54.515 are still on the edge of our seat, we're still 0:06:54.526 --> 0:06:57.645 biting our nails waiting for the shoe to drop. Ok? 0:06:57.656 --> 0:07:00.996 Would you say then that this is a favorable time 0:07:01.005 --> 0:07:04.936 to buy stocks considering they are I guess cheaper or 0:07:04.946 --> 0:07:07.445 lower priced at this time, there are definitely pockets of opportunities. 0:07:07.851 --> 0:07:10.462 Like for example, this year, we talk about the rally 0:07:10.471 --> 0:07:13.131 in us stocks. It is mainly driven by the A 0:07:13.141 --> 0:07:15.402 I side of things, right? Which means that there can 0:07:15.411 --> 0:07:18.432 be quite a lot of other sectors that are overlooked 0:07:18.441 --> 0:07:21.411 and have yet to recover. There can be some opportunities 0:07:21.421 --> 0:07:24.712 over there. And of course, investors also have to look 0:07:24.721 --> 0:07:28.282 at what is their investment horizon. I would always advocate 0:07:28.291 --> 0:07:30.441 that if you have a long term horizon, right? It 0:07:30.451 --> 0:07:31.661 actually makes sense that every 0:07:31.727 --> 0:07:33.528 time you have some capital to invest, you should just 0:07:33.537 --> 0:07:35.877 go ahead instead of really timing the market because you 0:07:35.888 --> 0:07:37.847 really would know if it's low, you buy more, right? 0:07:37.858 --> 0:07:40.648 If it's high, you buy less, but it's that consistency 0:07:40.657 --> 0:07:43.238 that really build out the wealth. So in a downturn, 0:07:43.247 --> 0:07:47.608 we tend to turn to safe haven assets. So your gold, silver, 0:07:47.618 --> 0:07:52.138 your precious metals, even property, sometimes its currency as well. 0:07:52.178 --> 0:07:55.738 Are these worth the buy in at this time? 0:07:55.944 --> 0:07:58.003 And what kind of returns are we looking at when 0:07:58.014 --> 0:08:02.704 the market does recover? Generally? I don't think alternative investments 0:08:02.713 --> 0:08:06.514 are better than say stocks for the long run. And 0:08:06.523 --> 0:08:10.783 some of the names that you mentioned have specific characteristics. 0:08:10.963 --> 0:08:13.843 For example, if you want to buy gold, you are 0:08:13.854 --> 0:08:16.704 actually betting against a weakening US dollar. You are indirectly 0:08:16.713 --> 0:08:19.563 shorting the dollar, right? Because the goal is priced in 0:08:19.574 --> 0:08:20.093 dollar 0:08:20.420 --> 0:08:23.809 and gold price tends to go up if the US 0:08:23.820 --> 0:08:26.769 dollar weakens and vice versa. Right? So should I wait 0:08:26.779 --> 0:08:28.970 for the US dollar to strengthen, then I go and 0:08:28.980 --> 0:08:30.820 buy my gold. It's almost like you are betting on 0:08:30.829 --> 0:08:33.728 a forex, you are betting on us dollar strength and 0:08:33.739 --> 0:08:36.280 the US dollar strength in turn is related to whether 0:08:36.289 --> 0:08:39.059 the Federal Reserve is hiking rates or cutting rates. So 0:08:39.070 --> 0:08:41.469 you can see it's a whole big macro mess that 0:08:41.479 --> 0:08:44.189 you need to figure out a domino thing. Exactly. So 0:08:44.200 --> 0:08:49.010 go itself doesn't have value unless people believe there is value. 0:08:49.250 --> 0:08:52.630 And historically, it has been seen as a store of value, right? 0:08:52.640 --> 0:08:54.770 Because it's seen as money. I mean, it's the thing 0:08:54.780 --> 0:08:57.349 that my mom goes to LA until US d came 0:08:57.359 --> 0:09:00.960 about and the link from go and become a fiat currency. 0:09:01.010 --> 0:09:03.020 But yet, because gold is still price in us dollar, 0:09:03.030 --> 0:09:05.619 that relationship is still there. Right? So that's where the 0:09:05.630 --> 0:09:09.039 value in buying gold so called lies is in the 0:09:09.049 --> 0:09:12.439 UD valuation. Yes, exactly. So, the addition to buy gold 0:09:12.450 --> 0:09:14.309 or not is really relies on the Mac 0:09:14.530 --> 0:09:17.122 analysis, which I think is not easy to get, right? 0:09:17.252 --> 0:09:20.780 Even economists don't get it right. I don't, I don't think, 0:09:21.322 --> 0:09:23.742 I mean, if someone got it right, we will be 0:09:23.752 --> 0:09:26.790 set for our lives. Right. Yeah. So I would say 0:09:26.802 --> 0:09:30.142 that conventionally, I will still believe that stocks are one 0:09:30.151 --> 0:09:33.801 of the best longer investments out there, ok? Because even historically, 0:09:33.971 --> 0:09:37.481 the returns have been better than if you just buy gold. Ok. 0:09:37.492 --> 0:09:39.382 So let's get into the nitty gritty of that. 0:09:39.614 --> 0:09:42.522 Let's first try and define what it means to be 0:09:42.533 --> 0:09:45.943 recession proof. Is there such a thing? Should we call 0:09:45.953 --> 0:09:52.593 it recession safe? Instead? I think a better word is defensive, recession, defensive, 0:09:52.604 --> 0:09:55.554 defensive stocks rather than like recession proof. So don't think 0:09:55.564 --> 0:09:58.674 of it. Don't frame it as under the recession conversation. Yeah. 0:09:58.684 --> 0:10:01.323 And defensive doesn't mean that you cannot let the opener, 0:10:01.403 --> 0:10:02.843 Gore go, you still can. But at the end of day, 0:10:02.854 --> 0:10:03.983 you want to win the match, right? 0:10:04.796 --> 0:10:07.806 You win 21 is still nice analogy there. Nice analogy. 0:10:07.815 --> 0:10:10.665 You have to take some hits, but it doesn't mean 0:10:10.676 --> 0:10:12.616 you don't win the game, the long game. Yeah. So, 0:10:12.625 --> 0:10:15.195 for example, in the context of stocks, right, which means 0:10:15.205 --> 0:10:17.995 that if you buy defensive stocks and if the market 0:10:18.005 --> 0:10:21.346 crash happens, it doesn't mean that your stocks won't go down. Right. 0:10:21.356 --> 0:10:23.425 It's possible that you can go down, but if your 0:10:23.434 --> 0:10:26.866 stocks go down less, maybe down 5% other people's stocks 0:10:26.875 --> 0:10:29.726 were down 30% you relatively feel good. Right. Yeah, 0:10:30.869 --> 0:10:33.949 I lost, I lost. Yeah. No, it's true though. It 0:10:33.960 --> 0:10:35.940 is true. It is true. So, I would say that 0:10:35.950 --> 0:10:39.179 having that defensive maybe is a better word than recession proof. Ok. 0:10:39.190 --> 0:10:43.030 So we will go with that term defensive stocks instead. 0:10:43.039 --> 0:10:46.859 So what are the characteristics then of stocks and investments 0:10:46.940 --> 0:10:51.599 that are defensive? Intuitively? People will always think of defensive 0:10:51.609 --> 0:10:55.189 as sectors or businesses where people will still demand their 0:10:55.322 --> 0:11:00.420 products and services, good sort of thing. Groceries, you will 0:11:00.432 --> 0:11:03.052 still go to supermarket. In fact, you go more because 0:11:03.062 --> 0:11:05.580 restaurant will be too expensive. So you go and buy 0:11:05.591 --> 0:11:08.322 food to cook at home. That's true. So supermarket business 0:11:08.331 --> 0:11:10.622 might even go up rather than go down. So with 0:11:10.631 --> 0:11:16.171 something like your electricity companies, utilities, basically anything that people 0:11:16.182 --> 0:11:18.981 would still use the product services during a recession. And 0:11:18.992 --> 0:11:20.072 what else outside of 0:11:20.153 --> 0:11:23.083 that segment can we look at in terms of health care? 0:11:23.093 --> 0:11:24.633 I would think so. Right. Because if you are you, are, 0:11:24.823 --> 0:11:26.754 you have to see a doctor, I think, especially in 0:11:26.763 --> 0:11:31.193 Singapore where we are driving towards healthier aging, that sort 0:11:31.203 --> 0:11:33.763 of stuff. So, there's longevity in that. Right. Or even 0:11:33.773 --> 0:11:38.004 aging homes. Right. Because you can't stop aging because it's recession. Right. So, 0:11:38.013 --> 0:11:42.403 so there are businesses like this that are pretty immune, 0:11:42.414 --> 0:11:44.624 ok to the economic ups and downs, right. 0:11:44.986 --> 0:11:47.366 The need. It's a need and not a want. What 0:11:47.375 --> 0:11:50.145 about things like reeds? I know streets tend to be 0:11:50.155 --> 0:11:53.515 quite popular in Singapore. Weeds can be a little bit 0:11:53.526 --> 0:11:55.745 more cyclical. Of course, it depends on the type of 0:11:55.755 --> 0:11:58.955 properties that they have. But if we generally look at it, 0:11:58.966 --> 0:12:03.426 like for example, your industrial definitely is cyclical in good times, 0:12:03.434 --> 0:12:06.835 you have more people renting spaces because they have more business, 0:12:06.846 --> 0:12:08.995 they have more staff moving around, they have more stuff 0:12:09.005 --> 0:12:11.835 to be produced, same as office. Right. Because if the 0:12:11.846 --> 0:12:14.356 times are good people expand and they need more office 0:12:14.366 --> 0:12:14.776 space 0:12:15.080 --> 0:12:18.848 and well, office spaces haven't looked good in a while. Yeah, exactly. Right. 0:12:18.859 --> 0:12:21.218 So they tend to be more cyclical and sensitive to 0:12:21.229 --> 0:12:24.039 interest rate. So that's another side of the story. But 0:12:24.049 --> 0:12:26.809 there are health care rates. They are definitely a lot 0:12:26.820 --> 0:12:30.250 more resilient. Ok. And what about stuff like aviation? Is 0:12:30.260 --> 0:12:32.869 that something that we can look at as well? Hospitality, 0:12:32.880 --> 0:12:35.729 I think at this point in time, the tourism team 0:12:35.739 --> 0:12:38.169 is coming back and we have yet to recover. To 0:12:38.179 --> 0:12:40.909 pre-covid numbers for tourism, which means there can be 0:12:40.974 --> 0:12:44.044 be some room for growth, but they are definitely not defensive. 0:12:44.094 --> 0:12:48.075 If recession comes, we tighten your belt or another pandemic. Yeah, 0:12:48.085 --> 0:12:50.924 you will not think of travel, you buy your food, 0:12:50.934 --> 0:12:54.174 but you may postpone your travel. Yeah. And also considering 0:12:54.184 --> 0:12:57.474 how we are living in such inflationary times, people are 0:12:57.484 --> 0:12:59.854 a bit more, I guess, thrifty when it comes to 0:12:59.864 --> 0:13:02.973 their money for luxuries like traveling. Right? So they are 0:13:02.984 --> 0:13:05.854 definitely not defensive. But if the economy continue to be 0:13:05.864 --> 0:13:08.525 good and picked up that, I believe tourism will do well. 0:13:11.880 --> 0:13:14.939 Hello everyone. My name is Steven Cheer and I'm host 0:13:14.950 --> 0:13:18.869 of CNAs Weekly news podcast, Heart of the Matter each week. 0:13:18.880 --> 0:13:21.770 My job is to ask the questions you have. Like, 0:13:21.780 --> 0:13:25.609 why is the coe so high? Why aren't singles dating 0:13:25.770 --> 0:13:27.890 or what's going on with the red 0:13:27.979 --> 0:13:30.950 hot property market in Singapore? If you want the views 0:13:30.960 --> 0:13:33.849 behind the news, then tune in each week as we 0:13:33.859 --> 0:13:36.109 get to the heart of the matter, we are on 0:13:36.119 --> 0:13:38.700 the CN A and me listen apps and wherever you 0:13:38.710 --> 0:13:42.130 get your podcasts hit, follow or subscribe. So you don't 0:13:42.140 --> 0:13:43.969 miss an episode when it drops. 0:13:48.359 --> 0:13:51.479 So apart from just buying lower price stocks, which seems 0:13:51.489 --> 0:13:53.760 to be the theme that we're going for. Now, there 0:13:53.770 --> 0:13:58.409 are some segments that can weather a recession better than others, right? 0:13:58.419 --> 0:14:00.869 So what would some of these be in your view? 0:14:00.890 --> 0:14:02.619 I think the other way to look at it is 0:14:02.630 --> 0:14:06.340 not to just look at sectors or businesses in terms 0:14:06.349 --> 0:14:08.919 of what we have discussed so far. But to look 0:14:08.929 --> 0:14:11.130 at certain characteristics of the 0:14:11.247 --> 0:14:14.986 businesses, for example, we can evaluate whether a business is 0:14:14.997 --> 0:14:17.836 defensive by looking at how you perform in the past. 0:14:17.846 --> 0:14:20.166 Because if there is a recession coming, it's not going 0:14:20.177 --> 0:14:22.216 to be the 1st 10, yeah, there are many, many 0:14:22.226 --> 0:14:26.187 recession before. So we can definitely look at certain stocks 0:14:26.197 --> 0:14:29.017 by looking at their past performance during the last recession, 0:14:29.026 --> 0:14:32.906 maybe fundamental matter here. Did they cut dividends? Did they 0:14:32.916 --> 0:14:33.956 cut revenue, did they? 0:14:34.133 --> 0:14:37.604 But profits did decline. And if the share price go down, 0:14:37.614 --> 0:14:39.864 how much do you go down relative to other stocks? 0:14:39.874 --> 0:14:41.994 So then we know that there is some proof whether 0:14:42.004 --> 0:14:44.934 this stock is indeed defensive or not. Right. And basically 0:14:44.943 --> 0:14:47.903 you're looking at the power of the rebound of that stock. 0:14:48.004 --> 0:14:51.013 So that would give us some sensing how it would 0:14:51.023 --> 0:14:53.833 perform into the recession come. Ok. So if these stocks 0:14:53.843 --> 0:14:56.424 tend to be more resilient against recessions 0:14:57.020 --> 0:14:59.591 would be their vulnerabilities. And surely there are some weak 0:14:59.601 --> 0:15:02.041 points because they can't all be rosy all the time. Right. 0:15:02.051 --> 0:15:03.781 The bad thing about defensive store is that ok? They 0:15:03.791 --> 0:15:07.741 do relatively better during a recession during bad times, but 0:15:07.750 --> 0:15:10.721 during good times, they underperform, OK? Because they tend to 0:15:10.731 --> 0:15:13.591 be very stable, steady. Right. Right. So they just stagnate. Yeah. 0:15:13.601 --> 0:15:15.911 So they don't grow, they don't enjoy the boom when 0:15:15.921 --> 0:15:18.101 it comes. So when the boom comes, that's where the 0:15:18.111 --> 0:15:19.851 risky stocks will outperform. 0:15:20.150 --> 0:15:22.450 And for some investors who will hold on to the 0:15:22.460 --> 0:15:25.679 defensive stocks and they will be feeling like, oh, my friend, 0:15:25.690 --> 0:15:27.789 my neighbor is making more money than me. I cannot 0:15:27.799 --> 0:15:29.650 take it anymore. I need to sell my defensive and 0:15:29.659 --> 0:15:33.000 get into those exciting stocks. But that's where the problem 0:15:33.010 --> 0:15:37.330 happens because when you feel that assignment lightly, it might 0:15:37.340 --> 0:15:39.599 be near the end because everybody has made their money. 0:15:39.609 --> 0:15:41.469 Exactly who is going to buy from by the time 0:15:41.479 --> 0:15:43.809 you realize? Oh, you know, I could have been making 0:15:43.820 --> 0:15:45.780 more money out of this. Your time in that 0:15:45.854 --> 0:15:48.864 the market is too late. Yeah. So my guess about 0:15:48.875 --> 0:15:51.484 this problem with defensive stock is that they don't prosper 0:15:51.494 --> 0:15:54.684 during good times and people might lose patience on them. Ok. 0:15:54.695 --> 0:15:58.224 Are there other weak points like every other business, even 0:15:58.234 --> 0:16:01.854 defensive stock? Sometimes their business can deteriorate. Their fundamentals can 0:16:01.864 --> 0:16:04.984 go poorer over time. Which means that if an investor 0:16:04.994 --> 0:16:08.265 picks some of these businesses or stocks, the constant monitoring 0:16:08.275 --> 0:16:10.294 is required right time to time may not be a 0:16:10.304 --> 0:16:11.484 daily monitoring, but 0:16:11.719 --> 0:16:14.159 every year maybe, you know, like a spring cleaning, you 0:16:14.169 --> 0:16:16.729 need to look at your stocks. My observation over the years, 0:16:16.739 --> 0:16:20.020 looking at investors, they have a tendency to buy but 0:16:20.030 --> 0:16:22.760 they don't have a tendency to sell. Yeah, they hang 0:16:22.770 --> 0:16:25.179 on to it, like, out of some strange loyalty. And 0:16:25.190 --> 0:16:27.619 I've always been intrigued by that psychology. Do you have 0:16:27.630 --> 0:16:30.460 any observations on that one is definitely loss of version. Right. 0:16:30.469 --> 0:16:32.929 Because it's painful to sell at a loss. It's easy 0:16:32.940 --> 0:16:35.729 to sell something that has gained, like, 10% sell. Well, 0:16:35.739 --> 0:16:36.789 I feel so good. Right. 0:16:37.913 --> 0:16:39.932 10% loss. Oh. But if I sell, it means I 0:16:39.942 --> 0:16:41.843 lose money. If I don't say I still have hope 0:16:41.853 --> 0:16:44.882 that it might come back up this kind of mentality. 0:16:45.453 --> 0:16:47.982 Do you think that kind of mentality is healthy? It 0:16:47.992 --> 0:16:52.632 definitely is not that good for investor because the fact 0:16:52.643 --> 0:16:56.213 is that no one can pick stocks 100% correct all 0:16:56.223 --> 0:16:58.572 the time. Yeah, just like how economies don't always get 0:16:58.583 --> 0:17:02.052 the forecast, right? Even Warren Buffett, but he is honest 0:17:02.062 --> 0:17:04.022 about it and he's able to sell. 0:17:04.104 --> 0:17:06.805 So even at a big loss, right, millions of dollars, 0:17:06.814 --> 0:17:08.494 he will take that loss and he will move on. 0:17:08.594 --> 0:17:12.034 So that is a necessary part of spring cleaning, right? 0:17:12.045 --> 0:17:14.795 You need to keep your portfolio clean if I can 0:17:14.805 --> 0:17:17.685 use that energy, right? A portfolio is like a garden. 0:17:17.915 --> 0:17:20.275 Of course, you want to have as many flowers as possible, right? 0:17:20.285 --> 0:17:23.494 That resemble your gains, right? But we cannot guarantee a 0:17:23.505 --> 0:17:26.635 garden will always have flowers, there will always be weeds 0:17:26.834 --> 0:17:28.305 and what do we do with them? We got to 0:17:28.314 --> 0:17:30.194 get rid of them, we get rid of them, right? 0:17:30.479 --> 0:17:32.649 So these weeds represent those stocks that should not be 0:17:32.660 --> 0:17:35.680 in the portfolio. But people don't, they keep it and 0:17:35.689 --> 0:17:37.489 they hope that the weeds can turn into flower one day. 0:17:38.060 --> 0:17:40.510 It's like hoarding for the wrong reason. So if we 0:17:40.520 --> 0:17:43.770 use that analogy, the, it just doesn't make sense. Yeah, 0:17:43.780 --> 0:17:46.169 you are right. So you did mention the kinds of 0:17:46.180 --> 0:17:48.390 homework we need to do before we buy into a 0:17:48.400 --> 0:17:52.420 company stock. So company fundamentals, historical performance. What about fund 0:17:52.430 --> 0:17:56.920 baskets that comprise the so called safer, more defensive stocks 0:17:56.930 --> 0:18:00.079 are these fund baskets an option if I don't want 0:18:00.089 --> 0:18:02.139 to buy individual stocks and if yes, 0:18:02.233 --> 0:18:04.113 what are the pros and cons to them? I would 0:18:04.123 --> 0:18:07.402 definitely suggest that majority of people should buy into funds 0:18:07.412 --> 0:18:10.233 or ETF S right? Rather than picking individual one as 0:18:10.243 --> 0:18:13.593 we have discussed is a challenging task. You need to 0:18:13.603 --> 0:18:15.883 pay attention and you need to know your stuff otherwise 0:18:15.892 --> 0:18:17.902 it's going to be difficult. So what do we need 0:18:17.912 --> 0:18:22.782 to understand overall when it comes to buying defensive stocks 0:18:22.792 --> 0:18:26.463 in terms of returns, timing, time in the market 0:18:26.635 --> 0:18:29.365 would think that a lot of defensive stocks appeals to 0:18:29.375 --> 0:18:32.066 a group of investors that tend to be more conservative. 0:18:32.145 --> 0:18:35.036 So I guess that people who are listening to this 0:18:35.046 --> 0:18:39.426 podcast have already self selected themselves and they look at 0:18:39.436 --> 0:18:42.015 the word defensive. They come in because they are more service, 0:18:42.166 --> 0:18:47.296 those who are aggressive investor, they look at this. This 0:18:47.465 --> 0:18:50.764 episode comes up. Defensive is boring. 0:18:52.000 --> 0:18:53.379 I need to get rich quick. 0:18:53.949 --> 0:18:56.500 This is too slow for me. Yeah. Yeah. Yeah. And 0:18:56.510 --> 0:18:59.139 this defensive stores also have the connotation that it is 0:18:59.150 --> 0:19:02.159 a boomer kind of. Yes. So I will also assume 0:19:02.170 --> 0:19:04.119 that the audience who are tuning in tend to be 0:19:04.130 --> 0:19:08.270 older and more reasonable. Actually, sometimes women too, apparently the 0:19:08.280 --> 0:19:10.839 psychology of women when they invest is that they are 0:19:10.849 --> 0:19:12.319 in it for the long term. They just want to 0:19:12.329 --> 0:19:14.109 do this and not think about it for the rest 0:19:14.119 --> 0:19:16.589 of their lives until it's time to catch out. Record 0:19:16.599 --> 0:19:19.339 shows that female investors are actually better than male. There 0:19:19.349 --> 0:19:22.079 we go. Yeah, because the male takes too much risk 0:19:22.089 --> 0:19:23.208 so they lose more. 0:19:24.680 --> 0:19:27.709 So what mistakes do you think we should avoid when 0:19:27.719 --> 0:19:31.810 buying into the defensive stocks in the market? One of 0:19:31.819 --> 0:19:35.439 the key things that potentially may harm a defensive investor 0:19:35.449 --> 0:19:38.319 is that they think that defensive stocks are safe. But 0:19:38.329 --> 0:19:40.079 in my opinion, there are no such thing as a 0:19:40.089 --> 0:19:43.859 safe stocks, even defensive stocks have their risk. And the 0:19:43.869 --> 0:19:45.579 worst is that you think that you buy it, you 0:19:45.589 --> 0:19:47.640 will not lose money and the share price come down 0:19:47.650 --> 0:19:49.790 and you panic and then you don't know what to do, 0:19:49.800 --> 0:19:52.909 which means it's a problem with the expectation and reality 0:19:53.140 --> 0:19:55.069