5 Risks to Look Out for While Bargain Hunting During a Market Slump

“Wake me up when September ends” – Green Day (rock band)

September’s been a rough month for the Singapore stock market to say the least.

After peaking at 3,550 points in April this year, the Straits Times Index (SGX: ^STI) then gradually started to fall. The descent intensified over August and September, culminating in the index closing at 2,791 at the end of the latter month. That level represented a decline of 21.3% from the April high and had put the Straits Times Index into bear market territory.

The index has since made up some serious ground, but at last Friday’s close of 2,999, there’s still a substantial gap to close before the April peak can be reached again.

While the big slide in the stock market so far may be gut wrenching, it may also be an opportunity to pick up some bargains. But, it’s important to be aware of any risks which may be present before we invest.

Here are five risks to note.

Risk No. 1: Watch the balance sheet – click here

Risk No. 2: Industry Risk – click here

Risk No. 3: Growth Risk – click here

Risk No. 4: Valuation Risk – click here

Risk No. 5: Personal Risk

The first four risks had direct links to a company, such as its share price and the business environment that it operates in. The fifth risk is a different thing compared to the first quartet.

Risk can also be personal. Let me elaborate. Every investor is a little different. As such, knowledge levels, investing mileage, past experiences, and even temperament are likely to differ from one investor to another.

A knowledgeable oil and gas investor may be comfortable with investing a big part of his or her portfolio in oil and gas stocks like the rig builders Keppel Corporation Limited (SGX: BN4) or SembCorp Marine Ltd (SGX: S51). That’s because said investor may have specific industry knowledge that gives him or her an edge in that area.

But, what makes sense for the knowledgeable oil and gas investor may not be the right move for everyone else.

Instead, other investors with interest in the oil & gas industry, but with less knowledge of its inner workings, may want to have portfolio allocations in oil & gas stocks that corresponds to their level of knowledge. In this way, you can yourself a chance to learn more before committing larger amounts.

A Fool’s take

Buying shares when they’re cheap can pay off down the road, but we should still be aware of the risks involved. Considering a company’s balance sheet, industry developments, future growth, valuation, as well as how much you know about the firm may be a good place to start in assessing risk.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.