Monday, August 6, 2007

Why stock markets dives within days?

The investment bubbles I mentioned are already in the system. Many people knows the risk but why do stocks market dive within days when these news are already known to investors?
I try to analyse for you...


The Domino Effect of Funds sell-out in 3 levels

1) Funds managers sell together on 1st day
Many Institutional Fund Managers set a target to sell their stock at a given price or if a certain event transpires. The sales are in large volume. They are willing to sell at slightly lower prices as they usually had made profits from the smaller investors.
This resulted in large supply of shares available for sale (after the event transpires) and it depresses the share price.

2) Weak shareholders forced to liquidate 3-4 days after the 1st Dive
When stock market is down, there are fewer buyers. Weak shareholder on margin are forced to sell their shares at a depressed price within a few days. They are not able to come out with a lumpsum to pay their existing shares.

3) General Investors Psychology after 1-2 weeks
The power of Herd Effect that cause economical panic. In the peak of a bull or bear markets, investors do not follow economic theories. They buy and sell based on emotions. Such irrational investments causes irrational market fluctuations. They are usually the slower movers and find chances to sell over the 1 week.

The 3 levels of selling should be over. The Institutional Fund Managers are probably looking for chance to enter the market now, pending favourable announcements that boost the market.

I believe its a good time to accumulate funds for long term investments now. Act Fast...


Anonymous said...

Base on History, every 4 to 5 years something unusual will usually happen.

From the Asian Financial Crisis to the George Soros, september 11 and etc.

Next year 2008 apparently is the anniversary of these every 4 to 5 years. One wonders what will happen next. Somehow are we growing too fast that when the bubble burst, everything will just fly out.

Khiat Han Hwee Adrian said...

History may and may not repeat and no one can predict the market accurately for 2008.

However, it will be interesting to see what happens after the China Olympics and US Election.