Thursday, September 18, 2008

How far more for the ST Index to fall?

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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9 comments:

  1. UnknownSeptember 18, 2008 12:37 PM

    Sir, how about your views about investing in AIG shares or S&P500 index now?

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  2. zhummmengSeptember 18, 2008 1:42 PM

    By next week STI should hit 2000.The market is so confused. It is not lemmings' instinct , it is not orderly. It is every body for himself, can't rely on second hand news now. Own judgement; grab whatever you can. This is the state.
    Despite the bailout the market is not easily calmed and looking at more dirt(HBOs) surfacing
    it is unlikely the end.
    There is more to come and this time perhaps in our own backyard. The financial institutions are mump now denying whatever they can. NTUC is admitting some exposure but not much they said.
    What about others?
    A bloodbath?
    This is the time for the mavericks and not the faint hearted, the kiasu and the kiasi.

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  3. hongjunSeptember 18, 2008 2:58 PM

    Look at how STI trades today. The index fluctuates quite a bit before and after lunch! There is certainly no sane in today's market.

    hongjun

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  4. zhummmengSeptember 18, 2008 10:24 PM

    Quote of the Day
    "It's not always easy to do what's not popular, but that's where you make your money. Buy stocks that look bad to less careful investors and hang on until their real value is recognized."
    - John Neff

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  5. TSKSeptember 19, 2008 3:36 PM

    This is not the time for long-term investments. This bear market might last for 7 years or more, more downside to come. Bear markets either move down or sideways, better to put money elsewhere, unless you have a good timing tool. Near term might see a bear market rally tho.

    http://smartinvesting18.blogspot.com

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  6. William NgOctober 07, 2008 1:17 PM

    An investor is not really bothered by how the market behaves in 1 year, 3 years or even 10 years. Just invest in companies which are fundamentally sound

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  7. ParkaOctober 09, 2008 10:20 AM

    I agree with what William Ng said. In fact, Steve Jobs once said that the share prices of a company are dependent on the actions taken by the company many years ago. There's no such thing as overnight success. Reading time charts are totally useless, at least read some financial statements.

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  8. William NgOctober 10, 2008 4:51 PM

    In my opinion, everyone need to know what exactly they are buying. Normally, I look at some factors such as:

    1) Whether the business are profitable. How much operating profit the company generates over the years. What is their profit margin.

    2) Whether cash reserve are strong

    3) How good are their management staffs. whether they have the capability to grow and expand company. Whether they have experience tiding companies over bad economy

    4) How does companies fare against their competitior

    5) What are their strengths, weaknesses and future development plans

    6) Any growth in revenue

    7) What did they use their loans for?

    8) How high are their debts

    In times like this, I am not really bothered about shares prices. This is because regardless of what happens, most stocks [fundamentally strong or not] just drops for whatever reasons. Everyone wants to recover and cut losses. One has to understand that market is irrational. During bull run, stocks seems to be overpriced yet people keep buying. In bear run, stocks are ridiculously cheap yet everyone is dumping.

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  9. AnonymousOctober 04, 2011 9:36 PM

    market is ready for entry at current levels

    ReplyDelete