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This Legendary Investor Has Made Bets That The Market Will Fall – What Should You Do?

According to an early June article from the Wall Street Journal, the legendary billionaire investor George Soros has been spending more time recently managing funds in his investment vehicle Soros Fund Management LLC after having played a more backseat role in recent years.

Soros, who is famous for breaking the Bank of England in 1992, earning over US$1.5 billion in a single month, has placed various bearish bets on financial markets. (To be bearish means you think the price of an asset will fall.)

Some of his recent investments include purchases of gold, shares of gold miners, and a put option on the US market index, the S&P 500.

What’s really going on

It’s hard to tell for certain why Soros had made the aforementioned trades. But, most investors engage in those trades if they’re anticipating a downturn in the markets.

For instance, the Wall Street Journal article I had referenced mentioned that “Investors often view gold as a haven during times of turmoil.” Meanwhile, an investor who buys a put option on the S&P 500 will make a profit if the index falls.

Perhaps most telling of all is the fact that Soros had recently voiced his concerns about the risk of deflation and economic conditions in China and Europe.

Steps for retail investors to take

So, it’s likely that Soros – a legendarily successful investor – thinks that the US market is poised to fall. Given the interconnectivity of global financial markets, a downturn in the US could have a significant impact on Singapore stocks. What can retail investors like you and me do? Should we sell our stocks since the market may decline?

Unfortunately, there’s no easy answer. But, we can look back at history for some clues.

The most severe market decline that Singapore had experienced over the past decade was the Great Financial Crisis of 2007-09. During that episode, the Straits Times Index (SGX: ^STI) – Singapore’s market bellwether – had plunged by two-thirds from peak-to-trough.

While the index is today still more than 25% off from its pre-crisis peak, there are many individual stocks that currently have prices higher than their pre-crisis highs. Some examples include Raffles Medical Group Ltd (SGX: BSL), M1 Ltd (SGX: B2F), and StarHub Ltd (SGX: CC3). In other words, there are stocks in Singapore’s market that have recovered from severe price declines in the past.

It’s worth noting too that a falling stock market may have little or no impact on some companies’ business (this is important to keep in mind as a stock’s price is often driven by the performance of its business over the long-term). If the stock prices of such companies fall hard in a general market panic, they may thus even be opportunities for bargain hunting.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.