Thursday, October 14, 2010

Warning bells are ringing?

With STI coming to 3200, I can almost hear the silent (and maybe not so silent) cheering for the market by people in the forums or in this cbox. With the number of unique users in the blog climbing up steadily, it meant only one thing - that we're back in the bullish period again. Have people started selling their mothers and mothers-in-law to get a bigger stake to play the game? I think not, but perhaps we'll see it coming soon.



One of the most obvious signs of market overheating is when newspaper start reporting, with bullish tones no doubt, that market had reached yet another high. This is precisely the warning bells that one must be aware of when staking your money in the stock market. Call me a perm bear if you will, but I would rather be cautious when others are so fearlessly chasing the oh-so-high prices. I don't know how people can whack the recently launched Yamada Green resources to make it reach above 60+% on debut, above IPO price. I've not seen such things for a very long time since I'm in the market. The last I saw such things, I was a newbie chasing after high prices and being the last one to leave the party, holding the hot potato.





What are some of the warning signs:



1. Newspaper reporting people with no knowledge or skills, perhaps students, playing the market and earning thousands in a day. Some might go as far as thinking of quitting their jobs to go full time because it's such easy money. When the majority are making money in the market, it's really time to leave the party.


2. You'll see many IPOs rushing to launch itself. Companies are not stupid - why sell equities when the times are bad and they can't get good money for them? Government related companies might try their luck too. Singtel IPO was just before the dot com bust, if you remember.


3. You go to public area and see people reading books on market. Esp trading books, because it's perceived to be easier than investing fundamentally. In truth, it's not, and it requires just as much hard work as investing. I remember watching a couple at mac discussing what stocks to buy for the coming week, the table full of charts and figures.


4. You see champions talking on TV and forums, well, like champions. The moment they remove fear out of their discussion, as if the market will continue this way forever, full of confidence because all their recent picks are all winners - ah...we had better slowly exit before the mad rush out of the party begins.


5. Analyst started using PE ratios instead of PB or NAV in their reports. I started an article on this way back  when I noticed the terminologies used in reports vary according to times. They must have something to write, so the emphasis to sell their point will vary according to the times.




I'm a net seller these few months, taking out more money than putting them into the market. If the market allows me to remove stuck positions, I'll gladly and gratefully do so with no remorse. In the meantime, I'll be very careful before adding new positions. Based on bro8888's latest article on the different types of animal, I think I'm a cross between a bo chup bull and a bearish bull wanting to be a bullish bear. Yea, I'm complicated.

12 comments :

Musicwhiz said...

Hi LP,

We who have been through one complete cycle of bull/bear can see it much more clearly than the current crop of "investors" who had never experienced (or sat out) of the previous punishing bear market.

I agree with your views. Everyone looks like a genius now.

Oh yes, also notice the number of new "investment" blogs sprouting up. That's also used by me as a signal of "IE", that famous Greenspan phrase hehe...

Regards,
Musicwhiz

Drizzt said...

i tried to look pass the performance because really any tom dick and harry buy now is because of a rising tide. it is during a sideways market that u see the skillful guys from the not so skillful ones.

but perhaps we are in an inflationary cycle. is it irrational? i think not. consolidation have been undergoing for some time. the breakout is justifiable.

Drizzt
Investment Moats.com

PanzerGrenadier said...

@Musicwhiz, @LP

I think it's "irrational exuberance" all over again :-P

I'm not adding much new positions, just holding on what I have for dividends and riding the tide.

Those who haven't gone through the crisis don't understand what it means to see your equity portfolio lose almost 60% in value over 6 months.

I'm 42% in equities and 58% in cash/cash equivalents.

Either way the market goes I can sleep pretty well at night so let those newbies make hay while the sun shines. But they should be prepared not to get wiped out when the market goes against them, especially those who trade on margins using leverage.

Be well and prosper.

la papillion said...

Hi mw,

Oh I didn't know there's more investment blogs set up. Any examples? haha

la papillion said...

Hi Drizzt,

I agree that during flat or bearish times that the really skillful ones are the ones still making money.

I think we just have to have a plan: if market goes up what to do, if it goes down what to do. Without any plan, when things become uncertain, pple tend to look for people around them for support.

la papillion said...

Hi PG,

Haha, I remember the times when my portfolio loses that much :) The price of the stock just keeps dropping like flies and it's like -5% or more per day for STI.

Invest to sleeping point eh? haha

AK71 said...

Hi LP,

I also want to make thousands per day but I am not making it. :(

Maybe these people without knowledge and skills know somethng I don't. :_(

Hubert wee said...

Hi LP, one such investing blog is:

www.diyvalueinvesting.blogspot.com

I know of this blog bcos someone visited my blog through his. It's quite a decent blog, with several informative posts..He receives something to the tune of 5 figures of dividends monthly..

la papillion said...

Hi AK,

Me too, haha :)

la papillion said...

Hi Hubert,

Thanks for the feedback - the blog indeed is interesting. 1 mil assets under his management...phew..

wealthyhabits said...

I agree with you on this. About the recent GLP IPO too, why do they choose to launch only now, must be because the market is good.

I applied and got only 1 lot but sold it off today for some money. Small money but I'm happy.

Will read up books on Alexander Elder like you mentioned on my blog. But which one in particular should I start with?

Thanks!

la papillion said...

Hi wealthyhabits,

Come into my trading room is a good start if you know about TA already :) If not, his first book, trading for a living, will tell you about the very basics.

Sell n sell short is for more advanced techniques and there are plenty of examples on how he would have done the trades himself.

Good luck1