Thursday, April 3, 2008

Catching a Falling Knife

Imagine a stock market falling hard on a downward slope. There will be people trying to buy into the market, thinking that a rebound is eminent. They ignored market signals and try to catch a good price. This is what I'm trying to describe: "Catching a falling knife".

When the market is in such a falling state, those who think that it will rebound and buy in more trying to support the prices will be cut deeply by this sharp falling knife.

Those who try to catch this knife previously might have been cut badly, but the market rebound lately has indeed been a breather. Now the question is:" Has the knife dropped to the ground?" I am not a fortune teller or analyst. I have absolutely no answer.

I read a report by an analyst from Temasek Holdings and he was so confident that the market had reached bottom. He spoke from the fundamental point of view and I agree with him. But I see that there are still uncertainties in the market and in my view, better to be prudent in our investment selection.

I had reduced my clients equities holdings earlier this year. There are calls from some clients about the recent rebound. I'll keep it this way until things get clearer.


Anonymous said...

Wow!!!Adrain, you are big timer too.
Advising client to reduce equity and where did you send it to? Cash? bond?
Did you send them back? Or They are lost in the cash or bond. When are sending them back. Let me know. I don't want to "hope' the knife.

Khiat Han Hwee Adrian said...

I had mentioned reduced, not totally switch. I am not a big timer as you described. I need not elaborate how I manage my client's portfolio but I can say its a routine tactical rebalancing and slight reallocation of asset class.

I know there are advisers who claim that they had switched 100% of their clients to bonds or cash in December or January. I don't know how true is it but if their prediction are wrong, their clients portfolio will surely underperform the benchmarks.