Friday, August 17, 2007

FED cut discount rates to 5.75

Today is another tua lao day for STI. Nearly got killed man...the selling was so intense and fierce that my counters got whacked from the start. I simply have no heart to look at it anymore. All my support levels I listed last night was breached. Swiber even went down to 1.99 (my god!) and cosco went from $6 pre-correction to the present $3.90. Nothing is left unturned by this bear raid.

This is indeed an eye opener for a newbie like me. It makes all the correction I've been through downright childish and insignificant. I've been through '06 May, '07 Feb and June but this is the worst ever. It really tested my mettle to hold steadfast when the crowd around me sold out to cut loss (I even went to buy...atlas, cheap gets cheaper these days). My confidence and smiles are slowly eroded as my portfolio went from break even to the now 21k losses. Almost reaching my max of 30k already, sob sob...

I will survive this and I also learnt 2 important lessons in this episode.

1. Margin of safety. Despite how badly Swiber and straits got whacked, I'm still net positive on these 2 counters. All my other counters turned from green to red (some from red to VERY red). The reason? I bought at a very low price. Even after such a drastic drop, my returns for swiber is still 50%. THAT alone shows how important it is to buy at a very low discount to valuations.

2. Reserve and discipline. This is linked to the 1st point. To buy when stocks are up is suicidal. To buy when stocks when dipped down is better but still risky. To buy when everyone is selling and there is absolutely no buying sentiment is the best time ever! Discipline to hold on to your bullets and not swing at ever pitch, discipline to buy when no others dare to buy is the key to successful long term investing. My hard earned money is meant for times like this - buy cheap when market is selling irrational! (not to be confused when stocks drop because there is fundamental problems to its business...line is hard to draw between the 2 sometimes)

Still not bad right? Learnt 2 points, pay 21k for it :P

Some news from SGX announcements:
1. GK Goh made direct market purchase. There are many reasons for key holders to sell their stake, but there's only 1 reason why they buy - they believe that their company are worth more than the current market price in the future.

An interesting turn of event happened minutes before Dow opened. In an unscheduled meeting, FED reduced the discount rates it lent to banks from 6.25% to 5.75%. This is especially significant since a few weeks (is it last week?), FED meeting left rates unchanged. Now the interest rate (5.25%) is different from this discount rates (now 5.75%). From what I understand, this discount rate is applied to banks that seek funds at the so-called discount window of the FED, which is very different from the 5.25% interest rates that FED lends to banks.

From this, we know that the problem had ballooned into something that is serious enough to warrant an immediate response to curb the liquidity problems in banks over at US. On sept 18, there will be a FED meeting to determine the interest rates. They might very well raise the rates to save their economy from turning into a big recession. Rather, they can try delaying the inevitable from happening. Dow opened up 200 pts, but now is around +100.

Hard to say what STI might respond to this. I hope it's good. The fact that we can go from -190 pts to -21 pts (with volume of 3.6 billon, way higher than yesterday) is no mean feat, which mirrors Dow's last night performance from -400 to -15. We might see a reversal coming soon. This is exactly the opposite of fact it's accumulation. I would love to see another big big drop in the morning followed by a neutral or slightly positive close at the end, with high volume to confirm this reversal move. But don't believe me, I'm an amateur.

Good luck to all!