Lehman brothers, who had been around for 158 years, declared bankrupt as the debts piled up and they could not find any white knight to save them. AIG, major insurance player in US, almost fell when they too needed a lifeline to save them from bankruptcy. It's a great irony to see that management of AIG, being involved in insurance whose role is to spread risk, did not practice what they preached. As the Queen song goes, 'Another bites the dust'.
Locally, we're not spared from the financial nuclear bomb that erupted over at US. Many policyholders of AIA, a subsidiary of AIG, had terminated their plans, fearing the worst had yet to come. Despite the calming pleas from AIA (they had taken the trouble to print a whole page in Straits Times newspaper about the situation of AIA), holders of their plans did not believe them. This is a classic case of the extreme pessimism and fear that spreads over the minds of people these days.
I see with my very eyes that LEH dropped 99.1% to reach the status of a penny. What force could have crippled a company with such a long history? Yes, it is the same enemy that causes the fall of kingdom and the corruption of man - greed. This shall serve as a very good lesson for us all - that history does not extrapolate itself to the future. An old man who had not experienced death in his whole life might think that he will live forever, but when the sudden and unpredictable event with catastrophic consequences strike, all his future will become history.
I remembered clearly that long before subprime pervades the mass media, there are a series of fashionable themes, arranged chronologically:
1. China might becomes the next superpower, over-riding US
2. China overextended itself and fear of its economy overheating
3. Subprime problem began
4. Subprime contained in US only, does not affect the world. Major financial institution have negligible exposure
5. FED going to cut interest rate
6. Commodity and oil prices going to rocket upward on surging demands. Analyst said that oil will reach USD 200 per barrel.
7. Commodity and oil prices going to be depressed due to economic recession. Analyst said that oil will be depressed around USD 100 per barrel.
8. China milk causing fear in milk products
The above is based on sheer memory, so if I didn't get it correct, do forgive me. I've been only in the market for 2 years and I think I've seen enough to recognise that optimism and pessimism switches periodically like the oscillation of a pendulum. The market prices stocks at PE above 50 when everything is happening smoothly and the bull is deemed to last forever. When catastrophe strikes (did you notice catastrophe seldom strike alone? Bad news comes in triplets, as the chinese saying goes), PE of stock goes to sub-10 and it's all gloom and doom.
Such is the vicissitudes of the market and we can all take advantage of the excellent value that the market is throwing at us in fear. When all around is panicking and running away from the market, do your due diligence, research and strike hard! In time to come, this could very well be one of those period in which future generations will remember as the best time to invest! To invest in stocks is to believe in the ingenuity and optimism of the human race, in whatever odds that seemed impossible to overcome when it happens. I feel that we're sitting right at the crux of this historical moment, do you hesitate? Will you act?
Work out your own salvation with fear and trembling. Be brave and say to yourself, it shall soon pass.
7 comments :
Indeed, even healthy companies are catching the virus of fear and being sold down to 100 weeks low.
Just look at Singpost. Its really hard to comprehend its sell down the past week.
You mean people will consume less of its services when there is a slowdown in the global economy?
I agree that the best time to buy is when nobody wants to buy. There is a tinge of detest when I mention stocks to colleagues nowadays!
I have invested my cash fully the last week.
Only time will tell if I did the right thing.
Good luck!
SBC
Hi SBC,
So fast switch to auto and fire already ah? haha :) If your time frame is long enough, I'm sure you'll be fine :P
LP
Fear and greed are the two powerful emotions that run through all investors, punters and speculators.
The SAS motto comes to mind,
"Who dares wins!"
Personally, I dun dare as I'm still about 60% invested in the market but the rest are in safe but low returns fairprice savings and time deposits... :-)
Be well and prosper.
Hi PG,
Haha, 60% vested is considered daring already :) I'm around 50% vested too, the rest in MMF and very little in savings account. I would invest more but I might have short term spending within 2-3 yrs, so can't use that amount of money.
Who dares wins indeed :P
All these while I have been hoping that more bloggers and forummers will report bad news and views so this will encourage more investors to hold cash.
I still think financial crisis is far from over, still holding a large part of my portfolio in cash, concentrating in my forex and commodities trading.
Hi brendan,
There are differences between a trading and investing. I think that the financial crisis is not over now too, but that is precisely why we should be investing now, when there are excessive pessimism lingering around. There are many companies whose business are still doing well, with low debts and whose prices have been sold down far below fair value. Of course, their business might be affected when the whole world goes into recession, but that is the risk an investor have to take.
To trade, however, is a different matter altogether. Nobody should be trading in the stock market when there are cheaper, better alternatives out there, like forex and commodities.
So my take is this: if one is having a trading mentality, then buying now when the market sentiment is down is indeed foolish. One should be looking to short instead.
Anyway, when do you think is a good time for investor to part with their cash and start getting into equities again?
There are many signs that the economy is going to remain weak over the next few quarters, hence companies will have difficult maintaining earnings growth.
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