By: Drizzt Never will i realize that i will learn in 2 months what i expect that i will learn in my 4 years in the market. In 2 months, the S&P500 fell 32%. Truth to be told, that is a very respectable figure, compare to what emerging market countries’ indices are facing. Numerous emerging market indices are down 60-70% from their peak last year, and a whole chunk of it happen to be in these 2 months. My portfolio is down by half that. This can be attributed to being 50% in cash all these time. Nevertheless, it really feels shitty to see a near 20k paper loss almost every week when i browse my Quicken. It would have been far worse had i not pared down my emerging markets unit trust and global unit trust. Correlation goes to 1 when bear market hits The main selling point of having an asset allocation is such that you minimize your portfolio risks and maximize your returns. by using instruments with different correlation, theoretically your overall portfolio risk should be less than individual instrument risk. What I observed in this bear is that when stocks go down, no matter you own shipping stocks or property plays, they all increase their correlations such that u get slaughtered no matter what you invest in. I do know that there are some counters that buck the trend. Companies like SMRT, STARHUB and M1 were doing ok in this environment but generally even defensive plays like ST Engine and SPH were hit as well. What I didn’t count on was that instruments who traditionally have negative or really low correlations will perform EXACTLY like equities. The real surprise and lesson was when commodities and precious metals equities went down with the general stock market. It was a costly mistake not to watch this as close as general equity market. I was able to reduce my unit trust equities when the shit hits the fan but completely omit to cut on precious metals thinking that traditionally gold and precious metal equities will explode to the upside in bear markets. Read more...