Thursday, August 16, 2007

Sub-Prime Woes

I seldom like to pen thoughts on short term market movements, but I thought the recent market downturn and volatility had get some investors worried and having sleepless nights by looking at their portfolio sinking deeper and deeper into the red. So, I pick up the courage to write some of my thoughts on this recent "hot" topic in the markets.

Frankly speaking, it had been the same old story everyday for the past few days when I picked up my copy of The Straits Times. "Asia market crashes", "Asia market down", "STI down XXX points" etc. Similar story line with experts having their go with their views on the markets. I wonder if I would just skip the story because the end result is always the same after I read them - i.e. Prepare for more volatility.

Markets hates uncertainty. From my experience in the market, uncertainty rocks the market very fast. Fundamentally, nothing changes. Corporate results in S'pore had been good for the last quarter. Companies are giving dividends. Business is still going on. What changes then? Emotions. Panic. Perception. Why? Because most of these "investors" have no asset allocation plan in place. They are just buying/selling stocks based on market movements. When things are good, they sound very good. When things are bad, even good news are neutral to them. Hence, these recent concluded corporate result and special dividends have no impact on a nervous market. "Sell and get away" is the rule of the game. Furthermore, punters are running away because liquidity dries up. Some speculative stocks are down almost 50% from last peak. Suddenly, all these RTO-related counters are no longer attractive anymore.

But let's look deeper into the issue and get ourselves oriented to the right way to invest. Is investing means getting away when things are bad? Of course not! It is about staying the course and riding out volatilty in the short term to achieve your long term goals. It is a simple but yet powerful concept which works throughout decades of market cycles. But why people are not following it? Because history always repeats itself! And because of this, fundamental investors have an opportunity to invest in fundamentally good stocks at decent prices. Remember when buying a stock, you are paying the market price but what you are buying is the intrinsic value of the business. As long as the intrinsic value of the business is intact, you should not panic even when the market price goes down.

And of course, as I have always like to stress - Have a portfolio view of your investments. Don't be too focused on each individual stock in your portfolio and try to react on them. This will bring you nightmares and headaches because chances are you will always be trying to do something since individual stocks do fluctuate quite wildly especially during these volatile times.

Well, they will always say - This Time Its Different! You see, sub-prime problems will impact the whole financial system, recession blah blah blah. Let's see how different this time it is. I will be holding my stocks dearly and buy them on further weakness.



Blogger 8percentpa said...

Interesting line on what the newspapers report. As you mentioned, it seems that they cannot really report anything useful except to address what is already well-known and maybe sometimes add unneccessary comments to volatile situations...

And during the boom times, they would simply do some Ra-Ra-ing w/o really researching on impt issues...

7:34 AM  
Blogger ghchua said...

Hi 8percentpa,

Yeah. They always try to find "reasons" to justify market movements in newspaper reports, which sometimes is really fear and greed of market participants rather than anything else.

When market is down, focus on negative news and report. When market is up, focus on positive news and report. All these factors had been there in one way or another, just that they need to highlight those that suites the day's market movement.

1:12 AM  

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A self-directed investor, looking to invest for retirement needs and bypass all those expensive financial planners/insurance agents. Investing is fun, profitable or most important of all, knowledge gained is useful for the rest of your life!

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