Someone asked me, "What is the lowest point that the ST Index can go down to?"
I do not know the answer. I don't think that anybody knows. But I can make a guess. And I wish to caution that this is just an opinion.
Here are the high and low points of the ST Index during the past two crisis.
Asian Financial Crisis - 1998: drop from high of 2,400 to low of 800
Corporate scandals - 2002: drop from high of 2,400 to low of 1,200
I consider the "fair value" of ST Index in 1998 to be 1,600 (mid-way between the high and low) and in 2002 to be 2,000. Projecting from these two fair values, I regard the fair value of ST Index in 2008 to be 2,700.
During a crisis, the market can drop to 1/2 or 1/3 of its peak. Taking the peak before the current crisis to be 3,800, I think that the ST Index can drop all the way down to 1,900.
However, if you wish to invest, you should not wait for it go all the way down to 1,900. It is all right to start investing now, and to add on (i.e. average it) down to 1,900. In case it does not reach this level (and the market recovers), you will have made some investments. As you are investing below the "fair value", it is all right to hold on to the investments, even if it falls further. The market will eventually recover.
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