There was market rallies around the world over the past 2 weeks as the world view the end of the credit crisis and in anticipation of Barack Obama’s victory in US General Election. The rallies are pretty impressive and it demonstrated how fast the market can go up just like how fast it can drop. Histories of financial market had proven that bouts of panic selling have often been followed by bout of panic buying.
News in the newspaper or TV are no longer news. When market rallies, they will say "Market anticipate the market is recovering and investors are picking up bargains". When market drops, they will say "Fears of economic downturn prompted selling". These news project very short term view which only make an investor more uncertain of the future.
Markets and investors have become highly risk averse and highly short term. Hedge fund managers are forced to liquidate their positions and fund managers are too eager to outperform the indexes. Regular investors like you and me seems hard to win in this financial market when it looks so volatile.
However, what I’m very sure is that regular investors like you and me do have one advantage over all these hedge fund managers. It is called "TIME". Short sellers and other players who rely on leverage and borrowing cannot sell a company short for years on end -- the nature of such trading is necessarily short-term. We are able to invest through the cycles and wait.
Having said all these, caution remains the order of the day. In my opinion, the downside risk is higher than the upside. Market are expected to trade sideways with higher risk of going down. There are much challenges ahead but we cannot fall into the trap of trying to predict the market too much. I urge everyone to stay invested, stay diversified and focus on the long term. Not necessarily putting 100% of your money in but adopt a strategy that allow you to switch into the equity market if it drop further.
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