When my colleague texted me last Monday to say what a terrible day it had been, with markets tumbling indiscriminately, I replied: 'What crisis?'
It was my day off and I was enjoying high tea dim sum with my mother, her friend, my wife and our younger daughter.
Crisis can wait.
==============
ng News > Money > Story
Oct 12, 2008
small change
Crucial to keep one's head
Current stock prices do not reflect solid fundamentals; bargains will emerge
By Dennis Chan, Deputy Money Editor
PHOTO: AFP
IF YOU have a stake in the stock market, the massive selldown last week must have been a frightening experience.
The closer you were to the action, the more terrifying it seemed.
Keep positive
I believe that markets will get better. Not immediately. Confidence, once lost, is not regained easily...
... more
By this, I mean sitting in front of the computer nightly and seeing messages popping up every other minute from news wire services reporting on European banks being bashed one by one.
One newsflash which stuck in my memory concerned the Royal Bank of Scotland, whose shares plunged by as much as 41 per cent last Wednesday, as the British authorities pondered a broad-based rescue of the country's financial institutions.
'This can't be!' I thought. 'It's the Royal Bank of Scotland, for goodness' sake! Not some Icelandic finance house-of-cards.'
A 41 per cent fall translates to a $4,100 loss on a $10,000 investment overnight. Ouch! I wonder how the bank's shareholders felt that day.
Worse was to follow for Asian markets.
Shares tanked all week long, driven by panic-selling everywhere.
The more I scanned the sea of red on the Singapore Exchange website, the scarier it got.
Keppel Corp, which started the week at $7.04, was down to $5.21 at its trough.
Sembcorp Marine fell to a low of $1.95 from $2.75, while City Developments (CDL) similarly slumped to $6.34 from $8.01.
It was enough to make Shylock weep.
By the time all the selling was done, the Straits Times Index had suffered its biggest one-week fall in recent memory, plunging 15.2 per cent to its lowest level in almost four years.
This must be the much bandied 'market capitulation' that experts have been warning about for months. Capitulation is what happens when even the most unflagging of investors throw in the towel and join the stampede out of the market.
Given the constant bombardment of bad news, one can't help but feel emotionally drained.
In the past, when I saw newspaper pictures showing cliched scenes of floor traders holding their heads in agony, I used to think they were somewhat contrived - bad actors hamming it up for the camera.
But such was the awfulness last week that I felt like cracking some heads. Preferably those belonging to Mr Dick Fuld, Mr Stan O'Neal and other Wall Street 'wizards' who are responsible for the current global economic mess.
However, this is not the time to lose one's head.
If you are, like me, a buy-and-hold investor, the difficult questions facing us are: What's next? Will the markets get better or worse? What should I do?
Do I sell now to recoup what is left of my tattered investments, acquire more shares at current bombed-out prices or do nothing?
There is plenty of expert advice, some of which you can find on Page 14.
Mr Oei Hong Leong, a savvy investor, has publicly called for investors to sell as he believes the worst is yet to come.
While I can't tell where markets are headed, one can learn from history.
I see a parallel in the current turmoil and the Asian financial crisis a decade ago.
In the 1990s, the US dollar was like the Japanese yen now - plentiful and cheap. Many Asian companies grew rich riding on the cheap credit by taking US dollar loans to finance their operations.
However, they were undone by the weak economic management of their governments, which left their economies vulnerable to concerted attacks by hedge funds.
When they succeeded in forcing the Thai government to devalue the baht in July 1997, the contagion spread quickly. The Philippines, Indonesia, Malaysia and South Korea were all hit. Many companies went bankrupt or had to be bailed out when they could not repay their US dollar loans owing to the sharp depreciation of the local currency. This led to widespread job losses and other major dislocations in local economies.
Although strong fiscal discipline and government reserves prevented Hong Kong and Singapore from losing control of their currencies to the speculators, there was no containing the stock market bloodshed.
At its worst in September 1998, CDL shares were trading below $3, while DBS Bank's were barely above $4.
I remember feeling despair at the time, having bought CDL shares at $9.50 less than two years earlier. But I held on to them doggedly and sold them at $15.80 last year after a holding period of more than 10 years.
The crisis peaked when the Hong Kong government intervened directly to defend the Hong Kong dollar peg and shore up its stock market in August, and Malaysia imposed capital control the following month. It took 14 months from beginning to end before the Asian selldown ran its course.
The circumstances driving down markets today are very different from those in the Asian crisis.
But at the heart of it is again the loss of confidence and trust among investors and banks, albeit on a global scale this time.
The priority in the current crisis, which is now into its 14th month, is for all stakeholders to rebuild trust so that banks will resume lending to one another.
It won't be easy. In fact, things seem to be taking a turn for the worse, with numerous European banks now needing state-sponsored crutches to continue to operate.
There are likely be more bankruptcies, nationalisation and forced mergers of major banks in the weeks ahead.
But given the concerted action taken last week by governments and central banks across the world, I'm hopeful that we are reaching the nadir of the financial crisis.
To answer my earlier question, I believe that markets will get better. Not immediately. Confidence, once lost, is not regained easily.
It's a maverick view in these very pessimistic times. Foolish it may seem, foolish I will stay.
And even if I'm wrong, cashing out of shares now when markets are in capitulation seems like a very bad idea.
For investors who employ the buy-and-hold strategy, this year has proven to be their 'annus horribilis'. But as stock prices continue to recede, more bargains will emerge.
I do not believe current prices reflect the fundamentals or underlying strengths of many blue chips. In an extreme bear market, stock prices operate on the weakest link principle - that is, they reflect the actions of investors who are most desperate to sell.
There will be opportunities to acquire quality stocks at bargain basement prices. But be prepared for the long haul.
The financial crisis may be coming to a head, but the economic downturn that is sure to follow has not arrived.
It will hurt. Job losses and pay cuts are distinct possibilities. You may be affected directly.
Take this into account before making any fresh stab in the stock market: Do not borrow to invest, do not invest with money you need to use in the next three to five years and re-examine stocks that you bought on a whim or a tip.
Weed out the weak investments. By that, I mean companies that may not survive a severe downturn or be in a position to ride the next up cycle. Sell them when sentiment improves.
Finally, keep your chin up.
Never lose perspective that investments are just one facet of life.
When my colleague texted me last Monday to say what a terrible day it had been, with markets tumbling indiscriminately, I replied: 'What crisis?'
It was my day off and I was enjoying high tea dim sum with my mother, her friend, my wife and our younger daughter.
Crisis can wait.
[email protected]
It was my day off and I was enjoying high tea dim sum with my mother, her friend, my wife and our younger daughter.
Crisis can wait.
==============
ng News > Money > Story
Oct 12, 2008
small change
Crucial to keep one's head
Current stock prices do not reflect solid fundamentals; bargains will emerge
By Dennis Chan, Deputy Money Editor
PHOTO: AFP
IF YOU have a stake in the stock market, the massive selldown last week must have been a frightening experience.
The closer you were to the action, the more terrifying it seemed.
Keep positive
I believe that markets will get better. Not immediately. Confidence, once lost, is not regained easily...
... more
By this, I mean sitting in front of the computer nightly and seeing messages popping up every other minute from news wire services reporting on European banks being bashed one by one.
One newsflash which stuck in my memory concerned the Royal Bank of Scotland, whose shares plunged by as much as 41 per cent last Wednesday, as the British authorities pondered a broad-based rescue of the country's financial institutions.
'This can't be!' I thought. 'It's the Royal Bank of Scotland, for goodness' sake! Not some Icelandic finance house-of-cards.'
A 41 per cent fall translates to a $4,100 loss on a $10,000 investment overnight. Ouch! I wonder how the bank's shareholders felt that day.
Worse was to follow for Asian markets.
Shares tanked all week long, driven by panic-selling everywhere.
The more I scanned the sea of red on the Singapore Exchange website, the scarier it got.
Keppel Corp, which started the week at $7.04, was down to $5.21 at its trough.
Sembcorp Marine fell to a low of $1.95 from $2.75, while City Developments (CDL) similarly slumped to $6.34 from $8.01.
It was enough to make Shylock weep.
By the time all the selling was done, the Straits Times Index had suffered its biggest one-week fall in recent memory, plunging 15.2 per cent to its lowest level in almost four years.
This must be the much bandied 'market capitulation' that experts have been warning about for months. Capitulation is what happens when even the most unflagging of investors throw in the towel and join the stampede out of the market.
Given the constant bombardment of bad news, one can't help but feel emotionally drained.
In the past, when I saw newspaper pictures showing cliched scenes of floor traders holding their heads in agony, I used to think they were somewhat contrived - bad actors hamming it up for the camera.
But such was the awfulness last week that I felt like cracking some heads. Preferably those belonging to Mr Dick Fuld, Mr Stan O'Neal and other Wall Street 'wizards' who are responsible for the current global economic mess.
However, this is not the time to lose one's head.
If you are, like me, a buy-and-hold investor, the difficult questions facing us are: What's next? Will the markets get better or worse? What should I do?
Do I sell now to recoup what is left of my tattered investments, acquire more shares at current bombed-out prices or do nothing?
There is plenty of expert advice, some of which you can find on Page 14.
Mr Oei Hong Leong, a savvy investor, has publicly called for investors to sell as he believes the worst is yet to come.
While I can't tell where markets are headed, one can learn from history.
I see a parallel in the current turmoil and the Asian financial crisis a decade ago.
In the 1990s, the US dollar was like the Japanese yen now - plentiful and cheap. Many Asian companies grew rich riding on the cheap credit by taking US dollar loans to finance their operations.
However, they were undone by the weak economic management of their governments, which left their economies vulnerable to concerted attacks by hedge funds.
When they succeeded in forcing the Thai government to devalue the baht in July 1997, the contagion spread quickly. The Philippines, Indonesia, Malaysia and South Korea were all hit. Many companies went bankrupt or had to be bailed out when they could not repay their US dollar loans owing to the sharp depreciation of the local currency. This led to widespread job losses and other major dislocations in local economies.
Although strong fiscal discipline and government reserves prevented Hong Kong and Singapore from losing control of their currencies to the speculators, there was no containing the stock market bloodshed.
At its worst in September 1998, CDL shares were trading below $3, while DBS Bank's were barely above $4.
I remember feeling despair at the time, having bought CDL shares at $9.50 less than two years earlier. But I held on to them doggedly and sold them at $15.80 last year after a holding period of more than 10 years.
The crisis peaked when the Hong Kong government intervened directly to defend the Hong Kong dollar peg and shore up its stock market in August, and Malaysia imposed capital control the following month. It took 14 months from beginning to end before the Asian selldown ran its course.
The circumstances driving down markets today are very different from those in the Asian crisis.
But at the heart of it is again the loss of confidence and trust among investors and banks, albeit on a global scale this time.
The priority in the current crisis, which is now into its 14th month, is for all stakeholders to rebuild trust so that banks will resume lending to one another.
It won't be easy. In fact, things seem to be taking a turn for the worse, with numerous European banks now needing state-sponsored crutches to continue to operate.
There are likely be more bankruptcies, nationalisation and forced mergers of major banks in the weeks ahead.
But given the concerted action taken last week by governments and central banks across the world, I'm hopeful that we are reaching the nadir of the financial crisis.
To answer my earlier question, I believe that markets will get better. Not immediately. Confidence, once lost, is not regained easily.
It's a maverick view in these very pessimistic times. Foolish it may seem, foolish I will stay.
And even if I'm wrong, cashing out of shares now when markets are in capitulation seems like a very bad idea.
For investors who employ the buy-and-hold strategy, this year has proven to be their 'annus horribilis'. But as stock prices continue to recede, more bargains will emerge.
I do not believe current prices reflect the fundamentals or underlying strengths of many blue chips. In an extreme bear market, stock prices operate on the weakest link principle - that is, they reflect the actions of investors who are most desperate to sell.
There will be opportunities to acquire quality stocks at bargain basement prices. But be prepared for the long haul.
The financial crisis may be coming to a head, but the economic downturn that is sure to follow has not arrived.
It will hurt. Job losses and pay cuts are distinct possibilities. You may be affected directly.
Take this into account before making any fresh stab in the stock market: Do not borrow to invest, do not invest with money you need to use in the next three to five years and re-examine stocks that you bought on a whim or a tip.
Weed out the weak investments. By that, I mean companies that may not survive a severe downturn or be in a position to ride the next up cycle. Sell them when sentiment improves.
Finally, keep your chin up.
Never lose perspective that investments are just one facet of life.
When my colleague texted me last Monday to say what a terrible day it had been, with markets tumbling indiscriminately, I replied: 'What crisis?'
It was my day off and I was enjoying high tea dim sum with my mother, her friend, my wife and our younger daughter.
Crisis can wait.
[email protected]
