The Traces of Bear Prints -- Euphoria is creeping in.
I was reading the investment section of Sunday Times for the past few weeks. Some of the articles never fails to inject a chill into me. There are articles and articles of young students making big money in the virtual or the real stock market. There is one student who made $7 millions from $100,000 he started with, and he won the virtual investment challenge. Another young graduate invested his parents money and multiplied the money from $30,000 to $100,000 in a year's time. No, it is not their age that disturbed me, rather, it is the idea that money can be made easily in the stock market and these people has never been through a bear market before. What's more, their strategies will not hold, in a market downturn.
Why? Because they forgot investment rule number 1: Never lose money through diversification and proper understanding of the markets
The Folly of Euphoria
I would say that the market is quite euphoric now. The period between June 06 and Feb 07 has been one of the best mini bull run in the Asian markets. The Singapore and Hong Kong stock markets has breached new highs. Oil and metal prices have been on the retreat. Corporate profit is still increasing modestly. On the whole, the Equity market will still continue to run. However, there is a concern in many parts of the investing world that short term valuation is on the high side.The probability of a correction runs higher as the days go by. There may be a good chance that we may experience what has happened last year: A sharp drop during mid year and a soaring rally by year end. There is a saying among stock traders," The higher it goes, the more it drops."
Yes, we are at historical high now. This is one of the few times when the market moves up continously for 9 months, without taking a break.
The Need for Retreat?
On the whole, there shouldn't be too much concern that we will lapse into a reccession soon. The conditions are not ripe for one yet. For investors who are employing a dollar cost averaging approach should not have too much concern because any downward correction is beneficial for their portfolio in the long run. The reason: They are picking up investments at a cheap price. For investors who are overly aggressive in their approach, a more defensive action should should be taken in the case of a correction.
Prepare for a Great Singapore Sale soon. Buy when the market is fearful and sell when auntie, uncles and students are investing.
I was reading the investment section of Sunday Times for the past few weeks. Some of the articles never fails to inject a chill into me. There are articles and articles of young students making big money in the virtual or the real stock market. There is one student who made $7 millions from $100,000 he started with, and he won the virtual investment challenge. Another young graduate invested his parents money and multiplied the money from $30,000 to $100,000 in a year's time. No, it is not their age that disturbed me, rather, it is the idea that money can be made easily in the stock market and these people has never been through a bear market before. What's more, their strategies will not hold, in a market downturn.
Why? Because they forgot investment rule number 1: Never lose money through diversification and proper understanding of the markets
The Folly of Euphoria
I would say that the market is quite euphoric now. The period between June 06 and Feb 07 has been one of the best mini bull run in the Asian markets. The Singapore and Hong Kong stock markets has breached new highs. Oil and metal prices have been on the retreat. Corporate profit is still increasing modestly. On the whole, the Equity market will still continue to run. However, there is a concern in many parts of the investing world that short term valuation is on the high side.The probability of a correction runs higher as the days go by. There may be a good chance that we may experience what has happened last year: A sharp drop during mid year and a soaring rally by year end. There is a saying among stock traders," The higher it goes, the more it drops."
Yes, we are at historical high now. This is one of the few times when the market moves up continously for 9 months, without taking a break.
The Need for Retreat?
On the whole, there shouldn't be too much concern that we will lapse into a reccession soon. The conditions are not ripe for one yet. For investors who are employing a dollar cost averaging approach should not have too much concern because any downward correction is beneficial for their portfolio in the long run. The reason: They are picking up investments at a cheap price. For investors who are overly aggressive in their approach, a more defensive action should should be taken in the case of a correction.
Prepare for a Great Singapore Sale soon. Buy when the market is fearful and sell when auntie, uncles and students are investing.
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