Monday, August 20, 2007

Does Price Fluctuation Matter?

Posted on Star Business: Stock Selection Crucial Now...

  • CMS Dresdner Asset Management Sdn Bhd chief investment officer Scott Lim shared similar thoughts, adding that “crisis also means opportunities.”

    Investors with long-term money should take the opportunity to buy into stocks that had been sold down significantly, he said.

    “The price fluctuation does not matter as long as investors are buying into companies with good fundamentals and holding them on a long-term basis,” Lim said, adding that for prudence, investors could also buy in stages.

    He is still optimistic on the oil and gas sector given its prominence in Malaysia as well as the domestic sector amid huge government spending on infrastructure development.

    “The market can over-react on the upside as well as on the downside. Investors should stay calm and be aware of what is being said of the subprime concern. It can spiral into a major issue or it can also be contained,” he said, noting that a lot of hedge funds were affected, which was the reason behind the recent heavy selling.

Just thinking out loud now.

Firstly, I do believe that one should not abuse the reasoning of investing for the long term.

1. Say you invest in a business and you would dearly love to stay invested in the business for as long as possible, ie long term. However, life is never as prefect. What if during the course of our intended long term holding, the business fails for one reason or another? To continue and hold on to the failing investment for the sake of long term would most likely yield a less than satisfactory result.

2. Does price fluctuation matters?

This is where it gets tricky and I do feel that it is extremely hazardous for the the average investor. If one is an average investor, one needs to realistic enough to realise that one is just a normal average person. And sometimes, extreme price fluctuation can play extreme mind games to the average person.

Say one's buy a so-called good fundamental stock before this mess happened. At this moment of time, some of these so-called good fundamental stock has fallen some 50% due to the current price fluctuation. So let me ask this now, how now Brown Cow? Could one stomach this price fluctuation? If no, isn't understandable for one to eliminate their risk from further price fluctuation by cashing out of their investment? Hey, they are protecting their capital, yes? And protection of capital, isn't it paramount?

So in my opinion, price fluctuations cannot be discounted. We are but normal human beings. And when extreme price fluctuation happens, trust me, it does matter!


sober33 said...

Totally agree. Fluctuation/volatility equals risks. Only those with risks capital should indulge themselves in a risky market.