Share prices have fallen sharply in a Recession

Question: The recession is a year old now and share prices have fallen sharply. Most of my friends are so nervous that they have sold all their shares, some incurring heavy losses. Are my friends doing the right thing?

Generally speaking when a recession is already a year old one should seize the opportunity to monitor share prices closely. Often, genuine bargains are secured during the worst time.

For instance, some shares could have fallen below their net assets backing or the PE ratio could be hovering below 10. Under such circumstances, the downside risk could be minimum.

Thus a share investor should seize the opportunity to analyse the stock market barometer e.g. the ST Industrial Index (or KLCI Index) to ascertain whether it is bottoming and has a potential to rise.

After all, one of the basic fundamentals of a stock market trend analysis is that it tends to foretell the economic recovery well in advance. Therefore you will be able to reap quite a substantial profit if your analysis proves right.


During a recession

• Do not panic
• Look out for bargains instead of cutting losses
• Monitor the Stock Market Index for bottoming formation

Ref:

Making Mistakes in the Stock Market by Wong Yee

http://tradingbursamalaysia.blogspot.com/2008/10/still-falling.html Where is the bottom? Ans: I don't know now but I will tell you when I see signs of bottoming.