Without bear markets to take stock prices back down, anyone waiting to "buy low" will feel completely left behind - and all too often, will end up abandoning any former caution and jumping in with both feet.
That's why Graham's message about the importance of emotional discipline is so important.
From October 1990 through January 2000, the Dow Jones Industrial Average marched relentlessly upward, never losing more than 20% and suffering a loss of 10% or more only three times.
This was the second - longest uninterrupted bull market of the past century; only the 1949 - 1961 boom lasted longer.
The longer a bull market lasts, the more severely investors will be afflicted with amnesia.
After five years or so, many people no longer believe that bear markets are even possible.
All those who forget are doomed to be reminded; and, in the stock market, recovered memories are always unpleasant.
Saturday, 25 October 2008
Think for Yourself
The cheaper stocks got, the less eager people became to buy them.
They were imitating Mr. Market, instead of thinking for themselves.
The intelligent investor shouldn't ignore Mr. Market entirely. Instead, you should do business with him - but only to the extent that it serves your interests.
Mr. Market's job is to provide you with prices; your job is to decide whether it is to your advantage to act on them.
You do not have to trade with him just because he constantly begs you to.
By refusing to let Mr. Market be your master, you transform him into your servant. Afterall, even when he seems to be destroying values, he is creating them elsewhere.
-----
In 1999, the Wilshire 5000 index - the broadest measure of US stock performance - gained 23.8%, powered by technology and telecommunications stocks.
But 3,743 of the 7,234 stocks in the Wilshire index went down in value even as the average was rising.
While those high-tech and telecom stocks were hotter (than the hood of a race car on an August afternoon), thousands of "Old Economy" shares were frozen in the mud - getting cheaper and cheaper.
The stock of CMGI, and "incubator" or holding company for Internet start-up firms, went up an astonishing 939.9% in 1999.
Meanwhile, Berkshire Hathaway - the holding company through which Graham's greatest discipline, Warren Buffett, owns such Old Economy stalwarts as Coca-Cola, Gillette, and the Washington Post Co. - dropped by 24.9%.
But then, as it so often does, the market had a sudden mood swing. The Old Economy stinkers of 1999 became the stars of 2000 through 2002.
As for the two holding companies, CMGI went on to lose 96% in 2000, another 70.9% in 2001, and still 39.8% more in 2002 - a cumulative loss of 99.3%.
Berkshire Hathaway went up 26.6% in 2000 and 6.5% in 2001, then had a slight 3.8% loss in 2002 - a cumulative gain of 30%.
Ref: Intelligent Investor by Benjamin Graham.
They were imitating Mr. Market, instead of thinking for themselves.
The intelligent investor shouldn't ignore Mr. Market entirely. Instead, you should do business with him - but only to the extent that it serves your interests.
Mr. Market's job is to provide you with prices; your job is to decide whether it is to your advantage to act on them.
You do not have to trade with him just because he constantly begs you to.
By refusing to let Mr. Market be your master, you transform him into your servant. Afterall, even when he seems to be destroying values, he is creating them elsewhere.
-----
In 1999, the Wilshire 5000 index - the broadest measure of US stock performance - gained 23.8%, powered by technology and telecommunications stocks.
But 3,743 of the 7,234 stocks in the Wilshire index went down in value even as the average was rising.
While those high-tech and telecom stocks were hotter (than the hood of a race car on an August afternoon), thousands of "Old Economy" shares were frozen in the mud - getting cheaper and cheaper.
The stock of CMGI, and "incubator" or holding company for Internet start-up firms, went up an astonishing 939.9% in 1999.
Meanwhile, Berkshire Hathaway - the holding company through which Graham's greatest discipline, Warren Buffett, owns such Old Economy stalwarts as Coca-Cola, Gillette, and the Washington Post Co. - dropped by 24.9%.
But then, as it so often does, the market had a sudden mood swing. The Old Economy stinkers of 1999 became the stars of 2000 through 2002.
As for the two holding companies, CMGI went on to lose 96% in 2000, another 70.9% in 2001, and still 39.8% more in 2002 - a cumulative loss of 99.3%.
Berkshire Hathaway went up 26.6% in 2000 and 6.5% in 2001, then had a slight 3.8% loss in 2002 - a cumulative gain of 30%.
Ref: Intelligent Investor by Benjamin Graham.
Controlling the controllable
Recognize that investing is about controlling the controllable.
You can't control whether the stocks or funds you buy will outperform the market today, next week, this month, or this year; in the short run, your returns will always be hostage to Mr. Market and his whims.
But you can control:
You can't control whether the stocks or funds you buy will outperform the market today, next week, this month, or this year; in the short run, your returns will always be hostage to Mr. Market and his whims.
But you can control:
- your brokerage costs, by trading rarely, patiently and cheaply.
- your ownership costs, by refusing to buy mutual funds with excessive annual expenses.
- your expectations, by using realism, not fantasy, to forecast your returns.
- your risk, by deciding how much of your total assets to put at hazard in the stock market, by diversifying, and by rebalancing.
- your tax bills, by holding stokcs for at least one year and, whenever possible, for at least five years, to lower your captal-gains liability.
- and, most of all, your own behaviour.
News You Could Use
Stocks are crashing, so you turn on the television to catch the latest market news. But instead of CNBC or CNN, imagine that you can tune in to the Benjamin Graham Financial Network. On BGFN, the audio doesn't capture that famous sour clang of the market's closing bell; the video doesn't home in on brokers scurrying across the floor of the stock exchange like angry rodents. Nor does BGFN run any footage of investors gasping on frozen sidewalks as red arrows whiz overhead on electronic stock tickers.
Instead, the image that fills your TV screen is the facade of the New York Stock Exchange, festooned with a huge banner reading: "SALE! 50% OFF!" As intro music, Bachman-Turner Overdrive can be heard blaring a few bars of their old barn-burner, "You Ain't Seen Nothing Yet."
Then the anchorman announces brightly,
"Stocks became more attractive yet again today, as the Dow dropped another 2.5% on heavy volume - the fourth day in a row that stocks have gotten cheaper.
Tech investors fared even better, as leading companies like Microsoft lost nearly 5% on the day, making them even more affordable.
That comes on top of the good news of the past year, in which stocks have already lost 50%, putting them at bargain levels not seen in years.
And some prominent analysts are optimistic that prices may drop still further in the weeks and months to come."
The newscast cuts over to market strategist Ignatz Anderson of the Wall Street firm of Ketchum & Skinner, who says, "My forecast is for stocks to lose another 15% by June. I'm cautiously optimistic that if everything goes well, stocks could lose 25%, maybe more."
"Let's hope Ignatz Anderson is right," the anchor says cheerily. "Falling stock prices would be fabulous news for any investor with a very long horizon." And now over to Wally Wood for our exclusvie AccuWeather forecast.
Ref: The Intelligent Investor by Benjamin Graham
Instead, the image that fills your TV screen is the facade of the New York Stock Exchange, festooned with a huge banner reading: "SALE! 50% OFF!" As intro music, Bachman-Turner Overdrive can be heard blaring a few bars of their old barn-burner, "You Ain't Seen Nothing Yet."
Then the anchorman announces brightly,
"Stocks became more attractive yet again today, as the Dow dropped another 2.5% on heavy volume - the fourth day in a row that stocks have gotten cheaper.
Tech investors fared even better, as leading companies like Microsoft lost nearly 5% on the day, making them even more affordable.
That comes on top of the good news of the past year, in which stocks have already lost 50%, putting them at bargain levels not seen in years.
And some prominent analysts are optimistic that prices may drop still further in the weeks and months to come."
The newscast cuts over to market strategist Ignatz Anderson of the Wall Street firm of Ketchum & Skinner, who says, "My forecast is for stocks to lose another 15% by June. I'm cautiously optimistic that if everything goes well, stocks could lose 25%, maybe more."
"Let's hope Ignatz Anderson is right," the anchor says cheerily. "Falling stock prices would be fabulous news for any investor with a very long horizon." And now over to Wally Wood for our exclusvie AccuWeather forecast.
Ref: The Intelligent Investor by Benjamin Graham
Embracing a bear market
Over a 10- or 20- or 30-year investment horizon, Mr. Market's daily dipsy-doodles simply do not matter.
In any case, for anyone who will be investing for years to come, falling stock prices are good news, not bad, since they enable you to buy more for less money.
The longer and further stocks fall, and the more steadily you keep buying as they drop, the more money you will make in the end - if you remain steadfast until the end.
Instead of fearing a bear market, you should embrace it.
The intelligent investor should be perfectly comfortable owning a stock or mutual fund even if the stock market stopped supplying daily prices for the next 10 years.
Paradoxically, "you will be much more in control," explains neuroscientist Antonio Damasio, "if you realize how much you are not in control." By acknowledging your biological tendency to buy high and sell low, you can admit the need to dollar-cost average, rebalance, and sign an investment contract.
By putting much of your portfolio on permanent autopilot, you can fight the prediction addiction, focus on your long-term financial goals, and tune out Mr. Market's mood swings.
Ref: The Intelligent Investor by Benjamin Graham
In any case, for anyone who will be investing for years to come, falling stock prices are good news, not bad, since they enable you to buy more for less money.
The longer and further stocks fall, and the more steadily you keep buying as they drop, the more money you will make in the end - if you remain steadfast until the end.
Instead of fearing a bear market, you should embrace it.
The intelligent investor should be perfectly comfortable owning a stock or mutual fund even if the stock market stopped supplying daily prices for the next 10 years.
Paradoxically, "you will be much more in control," explains neuroscientist Antonio Damasio, "if you realize how much you are not in control." By acknowledging your biological tendency to buy high and sell low, you can admit the need to dollar-cost average, rebalance, and sign an investment contract.
By putting much of your portfolio on permanent autopilot, you can fight the prediction addiction, focus on your long-term financial goals, and tune out Mr. Market's mood swings.
Ref: The Intelligent Investor by Benjamin Graham
"Fight or Fright" Response
When the stocks drop, that financial loss fires up your amygdala - the part of the brain that processes fear and anxiety and generates the famous "fight or flight" response that is common to all cornered animals. Just as you can't keep your heart rate from rising if a fire alarm goes off, just as you can't avoid flinching if a rattlesnake slithers onto your hiking path, you can't help feeling fearful when stock prices are plunging."
In fact, the brilliant psychologists Daniel Kahneman and Amos Tversky have shown that the pain of financial loss is more than twice as intense as the pleasure of an equivalent gain. Making $1000 on a stock feels great - but a $1000 loss wields an emotional wallop more than twice as powerful.
Losing money is so painful that many people, terrified at the prospect of any further loss, sell out near the bottom or refuse to buy more.
In fact, the brilliant psychologists Daniel Kahneman and Amos Tversky have shown that the pain of financial loss is more than twice as intense as the pleasure of an equivalent gain. Making $1000 on a stock feels great - but a $1000 loss wields an emotional wallop more than twice as powerful.
Losing money is so painful that many people, terrified at the prospect of any further loss, sell out near the bottom or refuse to buy more.
Friday, 24 October 2008
Panic Selling
Another big plunge in the prices of stocks in our market today.
At the rate it is going, it will not be surprising to see:
1. The blue chips selling at 50% of their fair value price.
2. The good mid-cap stocks selling at 30% of their fair value price.
3. The prices for the other stocks probably can reach a bottomless pit.
In a severe capitulation, the selling tends to overshoot on the way down.
Reliving the 1997-1998 Asian Financial Crisis
At the rate it is going, it will not be surprising to see:
1. The blue chips selling at 50% of their fair value price.
2. The good mid-cap stocks selling at 30% of their fair value price.
3. The prices for the other stocks probably can reach a bottomless pit.
In a severe capitulation, the selling tends to overshoot on the way down.
Reliving the 1997-1998 Asian Financial Crisis
How do I gauge the trend of interest rate?
Question: How do I gauge the trend of interest rate?
Generally, the central bank of a country uses interest rates to control inflation. Therefore, an understanding of interest rate trend is important since it invariably affects the stock market.
Basically, the trend of interest rates tend to depend on several factors.
One of the more important factors concerns the growth of money supply, that is, by comparing M3 with the economic growth which is that of Gross Domestic Product (GDP).
Illustration.
Country "A" (Broad Money Supply M3) Year 1993
*Broad money supply (M3) = A + B + C = $38.3bn
Annual % change in M3 = 24%
GDP (Rate of expansion) = 12.6%
Base Lending Rate (BLR) Current = 7.1% - 7.25%
Conclusion: The economy is facing high risks of inflation as the M3 growth rate of 24% is twice as fast as the rate of expansion which is 12.6% in nominal GDP.
Possible Action: As there is likely to be a surge in inflation in the immediate future, an increase in the BLR to 8.5% is a possible move in order to bring M3 growth rate back to about 15%.
Effect: Interest rate in Country "A" could be on the rise.
_____________
*Broad Money Supply (M3) = A+B+C
The Determinants are:......................... 1993......... % change
A. Net Lending to Government..........1.6bn........-1.0%
B. Private Sector Credit Demand........18.1bn......11.3%
Manufacturing...................2bn....+1.2%
Construction....................1.3bn....0.8%
Commerce.......................1.8bn....1.0%
Transport........................2.2bn....1.4%
Other Business...............1.0bn....0.7%
Personal...........................9.8bn...6.2%
C. External Liquidity.........................21bn......13.7%
Traders & Income
Repatriation........-5.4bn....-6.0%
Investments..................11.7bn....8.4%
Short Term Funds........15.5bn...11.3%
Ref: Making Mistakes in the Stock Market by Wong Yee
Generally, the central bank of a country uses interest rates to control inflation. Therefore, an understanding of interest rate trend is important since it invariably affects the stock market.
Basically, the trend of interest rates tend to depend on several factors.
One of the more important factors concerns the growth of money supply, that is, by comparing M3 with the economic growth which is that of Gross Domestic Product (GDP).
Illustration.
Country "A" (Broad Money Supply M3) Year 1993
*Broad money supply (M3) = A + B + C = $38.3bn
Annual % change in M3 = 24%
GDP (Rate of expansion) = 12.6%
Base Lending Rate (BLR) Current = 7.1% - 7.25%
Conclusion: The economy is facing high risks of inflation as the M3 growth rate of 24% is twice as fast as the rate of expansion which is 12.6% in nominal GDP.
Possible Action: As there is likely to be a surge in inflation in the immediate future, an increase in the BLR to 8.5% is a possible move in order to bring M3 growth rate back to about 15%.
Effect: Interest rate in Country "A" could be on the rise.
_____________
*Broad Money Supply (M3) = A+B+C
The Determinants are:......................... 1993......... % change
A. Net Lending to Government..........1.6bn........-1.0%
B. Private Sector Credit Demand........18.1bn......11.3%
Manufacturing...................2bn....+1.2%
Construction....................1.3bn....0.8%
Commerce.......................1.8bn....1.0%
Transport........................2.2bn....1.4%
Other Business...............1.0bn....0.7%
Personal...........................9.8bn...6.2%
C. External Liquidity.........................21bn......13.7%
Traders & Income
Repatriation........-5.4bn....-6.0%
Investments..................11.7bn....8.4%
Short Term Funds........15.5bn...11.3%
Ref: Making Mistakes in the Stock Market by Wong Yee
Why is US 30-year treasury bond price important?
Why is US 30-year treasury bond price important?
It is a norm that when bond price rises, interest rate falls and vice versa.
Thus investors need to to be able to read the bond price chart in order to understand the trend of US interest rate.
As the US is the world's largest economy, the impact of their interest rate tends to affect smaller countries such as Singapore and Malaysia.
In turn, the interest rates changes will affect the stock market in these countries.
It is said that investors in the US are not keen to buy shares once the 30-year treasury bond hits a yield of more than 8%.
Bond price ----> Bullish (rises)
===> decrease in interest rate ===> rise in share prices
Bond price----> Bearish (falls)
===> increase in interest rate ====> fall in share prices
It is a norm that when bond price rises, interest rate falls and vice versa.
Thus investors need to to be able to read the bond price chart in order to understand the trend of US interest rate.
As the US is the world's largest economy, the impact of their interest rate tends to affect smaller countries such as Singapore and Malaysia.
In turn, the interest rates changes will affect the stock market in these countries.
It is said that investors in the US are not keen to buy shares once the 30-year treasury bond hits a yield of more than 8%.
Bond price ----> Bullish (rises)
===> decrease in interest rate ===> rise in share prices
Bond price----> Bearish (falls)
===> increase in interest rate ====> fall in share prices
Currency movements and stock market
Question: What is the impact of the currency movements on the stock market?
This simple article is of interest to those investing in overseas stock markets.
24-10.08
http://biz.thestar.com.my/business/exchange.asp
Units of Malaysian ringgit per unit of foreign currency:
1 US DOLLAR = 3.6070
1 AUSTRALIAN DOLLAR = 2.4250
1 BRUNEI DOLLAR = 2.4040
1 CANADIAN DOLLAR = 2.8860
1 EURO = 4.6510
1 NEW ZEALAND DOLLAR = 2.1580
1 PAPUA N GUINEA KINA =1.4810
1 SINGAPORE DOLLAR = 2.4035
1 STERLING POUND = 5.8310
A possible impact could be that when the local currency is on the rise, foreign investors will want to sell their shares to realise their gains (shares realise value and exchange rate profit).
Similarly, when the local currency is falling, foreign investors may have the tendency to buy local shares since the cost is relatively cheap, provided the stock market is still bullish.
Scenario 1
MR rises ---> means that foreign investors will
---> sell shares,
---> change back into their own currency for capital gains
Scenario 2
MR falls ---> means that foreign investors will
---> retain local currency
---> buy Malaysian shares as the latter are relatively cheap
Ref: Making Mistakes in the Stock Market by Wong Yee
This simple article is of interest to those investing in overseas stock markets.
24-10.08
http://biz.thestar.com.my/business/exchange.asp
Units of Malaysian ringgit per unit of foreign currency:
1 US DOLLAR = 3.6070
1 AUSTRALIAN DOLLAR = 2.4250
1 BRUNEI DOLLAR = 2.4040
1 CANADIAN DOLLAR = 2.8860
1 EURO = 4.6510
1 NEW ZEALAND DOLLAR = 2.1580
1 PAPUA N GUINEA KINA =1.4810
1 SINGAPORE DOLLAR = 2.4035
1 STERLING POUND = 5.8310
A possible impact could be that when the local currency is on the rise, foreign investors will want to sell their shares to realise their gains (shares realise value and exchange rate profit).
Similarly, when the local currency is falling, foreign investors may have the tendency to buy local shares since the cost is relatively cheap, provided the stock market is still bullish.
Scenario 1
MR rises ---> means that foreign investors will
---> sell shares,
---> change back into their own currency for capital gains
Scenario 2
MR falls ---> means that foreign investors will
---> retain local currency
---> buy Malaysian shares as the latter are relatively cheap
Ref: Making Mistakes in the Stock Market by Wong Yee
What causes investors to buy or sell shares?
Question: What causes investors to buy or sell shares?
Always remember that in every trade, there is a buyer and there is a seller.
Generally, the buy and sell actions can be said to be governed by two basic elemets - "HOPE" and "FEAR".
People buy shares because they "hope" to make money. Similarly, people sell shares because they "fear" that their share prices will tumble.
"Hope" is normally centred around a country's economic performance. When there is "hope" of an economic expansion, share prices will rise in anticipation of the said economic upturn. Perhaps, the reason being, during an economic upturn, companies will make or are expected to make more money.
"Fear", on the other hand, is associated with unpleasantness in situations such as recessions, political crisis or social unrest. All these tend to create a sense of fear among market players thereby causing them to sell their shares. The fear of inflation or high interest rates have made market players rather jittery. The latest global financial and economic meltdown have similarly caused a worldwide selling in the stock markets.
Mind of the Market Player
Economy good? Bonus issue? ====> BUY
Recession? Political uncertainty? Riot, inflation, higher interest rate? ====> SELL
Reference: Making Mistakes in the Stock Market by Wong Yee
Always remember that in every trade, there is a buyer and there is a seller.
Generally, the buy and sell actions can be said to be governed by two basic elemets - "HOPE" and "FEAR".
People buy shares because they "hope" to make money. Similarly, people sell shares because they "fear" that their share prices will tumble.
"Hope" is normally centred around a country's economic performance. When there is "hope" of an economic expansion, share prices will rise in anticipation of the said economic upturn. Perhaps, the reason being, during an economic upturn, companies will make or are expected to make more money.
"Fear", on the other hand, is associated with unpleasantness in situations such as recessions, political crisis or social unrest. All these tend to create a sense of fear among market players thereby causing them to sell their shares. The fear of inflation or high interest rates have made market players rather jittery. The latest global financial and economic meltdown have similarly caused a worldwide selling in the stock markets.
Mind of the Market Player
Economy good? Bonus issue? ====> BUY
Recession? Political uncertainty? Riot, inflation, higher interest rate? ====> SELL
Reference: Making Mistakes in the Stock Market by Wong Yee
Thursday, 23 October 2008
Major overseas market falls sharply, should we sell our shares?
Question: When a major overseas market falls sharply, should we sell our shares (in panic)?
The crux of the issue is to always bear in mind that generally each stock market has its own trend. The problems and environment defer from country to country.
Thus, the peculiarity of the stock market may not necessarily affect the other.
Instead, the rise or fall of a stock market tends to depend on how investors perceive the particular situation say, in 6 months to 1 year. That is the future prospect of the country.
However, some may argue that the above view is erroneous.
Take for example, the October 1987 Wall Street Crash which rocked the stock markets of the world. To this, one needs to understand that the Oct 1987 crisis was due to a fear of a worldwide recession due to the insurmountable trade deficit in the US.
On the contrary, the even that caused the Hong Kong Hang Seng to plunge 633.85 points in 3 days on 11.3.93, 12.3.93 and 15.3.93 was attributed to the political issue between Hong Kong and China over the handling over of Hong Kong to China in 1997. Despite the drastic fall of the Hong Kong Hang Seng Index, the ST Industrial Index of Singapore remained firm. Therefore, if you had panicked and sold off your stocks, you would stand to lose out.
Each country has its own problems, economic or political.
Therefore, each country's stock market trend defers one from the other.
EXCEPTION: Worldwide fear could have a down effect.
Ref: Making Mistakes in the Stock Market by Wong Yee
Comments:
What about the present crisis?
How will this play out?
My opinion is the financial markets are not decoupled.
But what of the individual economies? Likewise too.
But let us not despair.
History has shown that after each crisis, the world rebounded back to higher levels of growth.
It is only a matter of when this crisis will be over.
You should have invested in a manner to be in a position to take advantage of the crisis.
For others, surviving the crisis unscathed maybe challenging.
Ref: Consequences must dominate Probabilities
The crux of the issue is to always bear in mind that generally each stock market has its own trend. The problems and environment defer from country to country.
Thus, the peculiarity of the stock market may not necessarily affect the other.
Instead, the rise or fall of a stock market tends to depend on how investors perceive the particular situation say, in 6 months to 1 year. That is the future prospect of the country.
However, some may argue that the above view is erroneous.
Take for example, the October 1987 Wall Street Crash which rocked the stock markets of the world. To this, one needs to understand that the Oct 1987 crisis was due to a fear of a worldwide recession due to the insurmountable trade deficit in the US.
On the contrary, the even that caused the Hong Kong Hang Seng to plunge 633.85 points in 3 days on 11.3.93, 12.3.93 and 15.3.93 was attributed to the political issue between Hong Kong and China over the handling over of Hong Kong to China in 1997. Despite the drastic fall of the Hong Kong Hang Seng Index, the ST Industrial Index of Singapore remained firm. Therefore, if you had panicked and sold off your stocks, you would stand to lose out.
Each country has its own problems, economic or political.
Therefore, each country's stock market trend defers one from the other.
EXCEPTION: Worldwide fear could have a down effect.
Ref: Making Mistakes in the Stock Market by Wong Yee
Comments:
What about the present crisis?
How will this play out?
My opinion is the financial markets are not decoupled.
But what of the individual economies? Likewise too.
But let us not despair.
History has shown that after each crisis, the world rebounded back to higher levels of growth.
It is only a matter of when this crisis will be over.
You should have invested in a manner to be in a position to take advantage of the crisis.
For others, surviving the crisis unscathed maybe challenging.
Ref: Consequences must dominate Probabilities
Fundamental analysis useful in bear market
Question: When should we use fundamental analysis?
Fundamental analysis is a good tool to engage at all times. It is particularly useful during a bear phase of the stock market.
When prices have fallen sharply to an unrealistic level, you could reap a handsome profit in future by using fundamental analysis to guide you in buying shares.
Fundamental analysis is a good tool to engage at all times. It is particularly useful during a bear phase of the stock market.
When prices have fallen sharply to an unrealistic level, you could reap a handsome profit in future by using fundamental analysis to guide you in buying shares.
- First, ascertain whether stock market is in a bull or bear phase.
- If it is a Big Bear, then use Fundamental Analysis.
Ref: Making Mistakes in the Stock Market by Wong Yee
What is a bear rally? What should I do?
Question: What is a bear rally? What should I do?
During a bear phase - a situation whereby share prices keep on falling to a new low after each rebound - share prices will, at a certain level, stage a steep upturn all of a sudden.
The buying power is so real that it appears as if a new bull market has been born.
Nevertheless, such a bear rally is often short-lived with a retraceable estimate of either 1/3, 1/2, 2/3 or even 100% of the fall.
(Note the recent 1000 points rise in 1 day of the Dow index and today's new low in Dow index)
During such a scenario, an investor should exercise caution when buying shares.
BEAR MARKET
Prices falling from point A -----> lower ----> to new low at point B ----
----------------------> Bear Rally (?% up 1/3, 1/2, 2/3 or 100% of AB)
Ref: Making Mistakes in the Stock Market by Wong Yee
During a bear phase - a situation whereby share prices keep on falling to a new low after each rebound - share prices will, at a certain level, stage a steep upturn all of a sudden.
The buying power is so real that it appears as if a new bull market has been born.
Nevertheless, such a bear rally is often short-lived with a retraceable estimate of either 1/3, 1/2, 2/3 or even 100% of the fall.
(Note the recent 1000 points rise in 1 day of the Dow index and today's new low in Dow index)
During such a scenario, an investor should exercise caution when buying shares.
BEAR MARKET
Prices falling from point A -----> lower ----> to new low at point B ----
----------------------> Bear Rally (?% up 1/3, 1/2, 2/3 or 100% of AB)
Ref: Making Mistakes in the Stock Market by Wong Yee
Wednesday, 22 October 2008
Effects of good news on share price
Question: Is the statement "When a company declares good profits the share price must rise" correct?
In most instances, the above-mentioned may be the case provided
In most instances, the above-mentioned may be the case provided
- the good news have not been discounted by the market yet and
- that the prevailing market sentiment is still bullish.
After all, in a bull market, all good news are regarded as bullish news.
On the contrary, in a bear market, good news may not necessarily cause the share price to rise.
In a bullish market
If good news:
- share price will rise
- if good news already discounted, share price will not rise.
In a bearish market
If good news:
- share price may fall
Ref: Making Mistakes in the Stock Market by Wong Yee
Historical Earnings
Question: Is it advisable to buy shares based on historical earnings?
One of the fundamental errors of market player is to make decisions based on historical earnings. Such a decision can be a costly affair.
Reasons being, economic situation always keep changing. In addition, each industry also has its own cycles.
It is thus more advantageous to do your own research to try and forecast the profits of a particular company.
If the profits forecast is better than the historical earnings, then it is worth investing in the said company shares.
Points:
Historical Data is just a guide
Do not base your decision on historical profits.
If possible, do both present and future forecasts.
Ref: Making Mistakes in the Stock Market by Wong Yee
One of the fundamental errors of market player is to make decisions based on historical earnings. Such a decision can be a costly affair.
Reasons being, economic situation always keep changing. In addition, each industry also has its own cycles.
It is thus more advantageous to do your own research to try and forecast the profits of a particular company.
If the profits forecast is better than the historical earnings, then it is worth investing in the said company shares.
Points:
Historical Data is just a guide
Do not base your decision on historical profits.
If possible, do both present and future forecasts.
Ref: Making Mistakes in the Stock Market by Wong Yee
What should I do in a bear market situation?
The best strategy is to go for a holiday and let the market cool off.
When things have settled down, you may commence to do some bargain hunting.
Ref: Making Mistakes in the Stock Market by Wong Yee
When things have settled down, you may commence to do some bargain hunting.
Ref: Making Mistakes in the Stock Market by Wong Yee
What is a bear market?
It is a situation whereby share prices keep on falling lower and lower.
Although at a certain point in time share prices will head for a rebound, the rebound normally will not be sustained.
Thus, the downward escalation of share prices resumes as bad news keeps surfacing one after another.
Investors and speculators become jittery and sell their shares at a loss.
Bad debts become the order of the day and lawyers are busy issuing demand letters.
Suddenly, those smiling faces are replaced with sadness and a solemn mood.
Brokers also find themselves in trouble when clients fail to settle debts.
STOCK MARKET INDEX ----> falling -----> Low ------> New Lows----->
Scenario:
Bad news abound
Forced selling by brokers
Bad debts to be collected
Sad faces around
Although at a certain point in time share prices will head for a rebound, the rebound normally will not be sustained.
Thus, the downward escalation of share prices resumes as bad news keeps surfacing one after another.
Investors and speculators become jittery and sell their shares at a loss.
Bad debts become the order of the day and lawyers are busy issuing demand letters.
Suddenly, those smiling faces are replaced with sadness and a solemn mood.
Brokers also find themselves in trouble when clients fail to settle debts.
STOCK MARKET INDEX ----> falling -----> Low ------> New Lows----->
Scenario:
Bad news abound
Forced selling by brokers
Bad debts to be collected
Sad faces around
What should I do in a bull market situation?
As share prices will be rising since speculators are chasing after the shares, the best strategy to adopt is to buy during a correction.
In case the share price should drop after buying, you need to do some averaging.
However, remember to keep on selling once you have profits.
SHARE PRICE -------> Rising --------> Correction or consolidation ===> Buy!
Always buy downwards and buy to average i.e. lowering your cost.
Ref: Making Mistakes in the Stock Market by Wong Yee
In case the share price should drop after buying, you need to do some averaging.
However, remember to keep on selling once you have profits.
SHARE PRICE -------> Rising --------> Correction or consolidation ===> Buy!
Always buy downwards and buy to average i.e. lowering your cost.
Ref: Making Mistakes in the Stock Market by Wong Yee
What is a bull market?
Simply put, a bull market is a situation where share prices are rising higher and higher giving the impression that this upward movement will continue indefinitely - with little pockets of correction along the way.
Everyone seems to be making money. Good news is in abundance and bad news does not seem to exist.
Smiling faces can be seen everywhere and restaurants are often fully booked. Conversations on buying new cars or expensive watches never seem to end.
STOCK MARKET INDEX reaches a ------> Peak -------->correction or consolidation ------
--------> Higher Peak ----------> Correction or consolidation --------> Higher Peak
Everyone seems to be making money. Good news is in abundance and bad news does not seem to exist.
Smiling faces can be seen everywhere and restaurants are often fully booked. Conversations on buying new cars or expensive watches never seem to end.
STOCK MARKET INDEX reaches a ------> Peak -------->correction or consolidation ------
--------> Higher Peak ----------> Correction or consolidation --------> Higher Peak
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