The following written by Business Times, senior correspondent, R. Sivanithy certainly caught my attention.
- Fear, greed, and the fear of being left out
By R SIVANITHY
SENIOR CORRESPONDENT
WE'VE reached that time of year when investors everywhere must surely be wondering what the New Year holds in store for stock markets.
Coming at a time when the interlinked emotions of greed and fear are at all-time high levels, it makes the business of objective prediction all that much more difficult - greed drives everyone to keep predicting prices will keep rising, while the fear lurking at the back of everyone's minds tells them that there is a slowdown to contend with, present prices are probably not supported by future earnings, and markets everywhere are becoming increasingly vulnerable to setbacks.
There is also another facet of fear, that is, the fear of losing out. Anecdotal evidence from brokers is that retail clients have reached - or are close to reaching - their maximum frustration point over the past week.
Angry at not having made enough money in the run-up this year but yet worried at the levels at which they are contemplating their entries, many are turning to 'junk' to ease their frustrations.
Thus, it is that half-cent and one-cent counters are seeing massive daily volume, as are all those priced under 5 cents. Stockmarket apologists might defend this sort of activity as a sign of a healthy trading market, but we suspect it speaks volumes about rising speculative froth more than anything else.
As for what 2007 might offer, much depends on the US economic outlook and interest rate expectations. All analysts agree that the US will suffer a slowdown next year, but not all agree on how bad this might be and the consequent implications for interest rates.
Perhaps the most bullish is BCA Research, which in its Friday Global Investment Strategy report said equity markets around the world are still cheap, that re-ratings in multiples should dominate, and investment strategies should have a pro-equities, pro-growth bias.
BCA's analysis is based on the 'soft landing' scenario, in which global economies - led by the US - enjoy moderate growth amidst low inflation, a scenario it says last played out in 1995-1996. It also looked at historical price-earnings trends and concluded that stocks are still a buy.
(Investors who buy into BCA's 'history could repeat itself' argument should also be mindful of that other historical occurrence ten years ago, namely, the Asian currency crisis of 1997.)
In the not-so-bullish camp are the likes of UBS Investment Research (UBSIR) and BNP Paribas. In a Dec 4 Global Economic Perspectives report, UBSIR said it believes 2007 will be characterised by 'sub-trend global growth and ebbing profitability, with a shift in the composition of growth away from the US and away from consumer spending'.
This cautious view is mainly because of the US. 'The conviction we have in the global view is strong. We have a high conviction, for example, that US demand will become more handicapped by housing-related weakness over the months ahead, outcomes that are not, in our view, fully discounted by some US forecasters and policy makers.'
BNP's Fixed Income unit, in the meantime, said in a report entitled 'Hard Landing' that the US Fed will probably have to cut interest rates aggressively in the first quarter because of downside surprises to growth coming from a collapsing housing market.
So much for the broad outlook for next year. The week ahead sees the US Federal Reserve conduct its periodic Open Markets Committee meeting tomorrow at which it is expected to keep its federal funds rate fixed at 5.25 per cent.
The local market should trade sideways until the meeting is over and done with, although property stocks could have to contend with residual selling left over from Friday, following the conclusion of the integrated resort bidding saga.
The one thing we can say for sure is that fear, greed, and the fear of being left out will continue to drive stocks more than ever before, making for a volatile week ahead.
This reminded me of this posting i wrote last year: If ze Market continues to rise..
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Read this interesting piece the other day...
Asset allocation and evaluation of results
- “During the strong market of the 1990s, most investors who rode the wave ignored traditional ideas about valuation. Some money managers remained invested on the basis of a practical calculation: "If the market continues to rise and I'm not participating, I'll lose my job. But if it falls dramatically, I'll be in the same situation as everyone else." Others were conscious market cynics who thought they could successfully exploit the foolishness of others. Momentum investors didn't need an opinion about valuation. They were consciously saying, "The market may be overvalued-we don't know and we don't care. All we know is, it's been going up, and we're going to invest as long as it does-and get off the train before everyone else." The problem lies in executing the greater-fool theory. If you get off every time the market ticks down and then reestablish your position when the market starts to go up again, you're going to get killed, because even rising markets fluctuate on the way up. And if you wait, you risk going down with everyone else.
This got me thinking.. hmm... if the market continue to rise ... am i gonna miss Ze opportunity?
Should an investor's reasonings to invest and hold a stock be based on that particular stock's underlining fundamentals or should it be based on the prevailing market conditions?
What say u?
Me? I prefer doing it based on what i know best. If a stock is over-valued, i would sell. If a stock's fundamentals is deteriorating, i would sell. If a stock is fairly priced, it simply means it is fairly priced. And if a stock is worth investing then it is worth investing. And if the management or owner of the stock attempts any funky corporate manouveres to cheat me, ain't it a no-brainer to kiss the stock goodbye forever and ever?
To base my investment reasonings on the stock market? Should i invest in a stock because the stock market is going up? Gosh! It's simply beyond me because there is simply no way i could tell if the stock market is coming or going! Me pants would definitely be on fire if ever i told u i could. So where is the market heading? Issit bull or issit bear? I have simply no idea! I dunno lah. Do you?
Anywayyyy..... in short.... i would rather miss such opportunity.... and if the market goes flying, it goes flying... so be it.... as Ah Beng Kor would sing in his bath-tub.. Que Sera Sera mah... :D
err.... this is just me personal opinion lah... and if u dun agree, do feel free to leave ur comments, ya? :D
The last bit of that write-up is certainly a great reminder to all... i think... :D
- Finally, there is the challenge of evaluating results. For stretches of time, a stock picker may outperform the market for reasons that have nothing to do with skill. He may simply be in sync with the biases of the market-favoring telecommunications stocks, for example, during a period when the market as a whole favors them. Or he may be lucky. The "random walk" theory posits that if a large number of monkeys pick stocks by throwing darts at stock tables, half will do better than the average stock picker and half will do worse. If the winning monkeys then repeat the exercise once each year for ten years in a row, one out of 1,024 will beat the average every year, merely on the basis of probabilities. A stock picker who beats the S&P 500 ten years running will almost surely be lionized as having a special genius-and some may-but others will do so merely as a matter of chance.”
Hmmm... doesn't it make sense? During 1999-2002 .... there were a lot of cheap stocks..... The underlining market was simply cheap and stock picking was simply easy then... .... so stay modest lah....dun get so big-headed lah... whatever good results achieved then... doesn't mean much really. The underlining market was simply cheap and stock picking was simply easy then... :D
Oh.... and.... if any stock picker(s) starts boasting their investment results based on these periods of time, say 1999-2002 or even 2003, and starts giving investing advice(s) based on their so-called excellent track record....do take it with a pinch of salt! For these buggers might not be as geng as u thought, they were simply lucky to be investing in a period of time where stocks were simply cheap! So dun simply-simply call any1 sifu and dun simply-simply follow lor.
But then.... stock investment is not a game of follow you, follow me mah.... tiok boh?
:D
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Fast forward 11th Dec 2006.
Ze market has certainly moved up, up and away...
How?
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