Saturday, October 25, 2008

Market beyond reasoning

It was disastrous for Investors over the past 2 weeks. Our initial estimate of 1,700 stabilizing point for STI was broken and currently trading at 1,600. Our estimate of 8,000 stabilizing point for Dow is near as it is trading at 8,200.

The million dollar question is if the market was oversold? Many thought it was oversold 1 week ago, many thought 1 month ago but it was still coming down. Needless to say, I don’t have the answer either… But what I want to say is that Life is still running and people are still spending money. The mechanism of economy is still there. Its not the end of the world. Why give up on the world?

If we try to use financial formulas and ratios to analyze if the market is oversold, it will not make sense. This is because the market may had dropped to a point and at a speed beyond logic. The STI had dropped to a 5-years low within a short time frame of 1 year. Its irrational when everyone are ignoring any good news and take all news as bad in a bear market as well as ignoring every bad news and take all news as good in a bull market.

I have a crazy idea of trying to find the bottom. We can do a survey on the general population with a good a mix of Uncles, Aunties and professionals. Objective is to find out the ratio of these people who are willing to invest to the ratio of people who won’t now. Maybe, if 60% say “Yes”, the market may rebound soon… Perhaps, if I'm free enough, I may go Shenton way and do the survey.

The current sentiment is still bad. Everyone takes all news as bad because they expect it to drop. But it will come to a point when all these fund managers simply want to invest, they will view small information as good news and exploit on them. Any such unexpected good news may cause the indices to rally faster than we expect. By then, those who stayed out of the market will miss it.

For those going for the long haul, Its a good time to re-allocate more equities proportion into your overall portfolio. Just keep it as per your risk level and capabilities. I'm on a 40E-60BMM portfolio. I'll be switching additional 5% out from Money market into Equity soon.

Sit tight, hope we will ride out the storm soon...


Anonymous said...

You must be joking. Still buy? Market will drop more!!! Don't be a smart aleck and let your client lose money!!!

Anonymous said...

During bear market, people say don't buy coz many negatives news in the papers.

During bull market, people say everything sure make money and then proceed to buy latest fashion like tech stocks (~2000) and china/india funds (not too long ago) coz many positive news in the papers.

It isn't a surprise that such people lose out the most in terms of opportunity costs and actual losses. It appears no one pays attention to the recent Aberdeen advertisements on the SMRT trains.

Anonymous said...

Why not? As Warren Buffett says,"So if you wait for the robins,spring will be over."

Anonymous said...

I guess now it's self-fulfilling prophecy

Anonymous said...

I guess it's too early to give you a pat on the shoulder. Always prepare your clients mentally before they sign on the line if the market takes a dive. Scenario plannings and Contingency plans are parts and parcels of top management weapons.

wilfredling said...

The anonymous at "Oct 25 2008 3:31pm" said
"You must be joking. Still buy? Market will drop more!!! Don't be a smart aleck and let your client lose money!!!"

If it is 100% for sure market will go down, than it is possible to earn money by shorting the market (legally). But why aren't most people doing this? It is because of knowing that market will rebound eventually. The reason why is because it is an unacceptable outcome for markets to go down to zero. If that happens, it is the end of the world for which there isn't a difference whether one had invested or not.

Brendan Lee said...

AUD has fallen much much lower now. As I had mentioned earlier, if customer is not comfortable with 6% loss, she will have to get use to 10% loss.

Anonymous said...

Bulls make money,bears make money,but those who just sit and watch on the sidelines -- don't.

"When our actions do not,our fears do make us traitors" The Bard