Friday, 31 August 2012

The Investor Sentiment Wheel

In the 1993 bull run the youngest office boys gave out stock tips, a classic telltale sign that share prices were very rich. Malaysia looked to be on a roll, but structural problems were ignored. In 1994 prices softened somewhat, but the real reckoning came in 1997/98, when it turned out that the economy was not that good, after all. It looked like the world was coming to an end (at least for Malaysia) and the KLCI index reached a low of 250. For those who had cash and a lot of guts there was an excellent buying opportunity. Prices recovered in the next decade, with moderate crashes during the Dotcom bubble and SARS. In 2007 it looked like the global economy was going very well, but again structural problems were overlooked and in 2008/9 the house came down. Not so much in Malaysia (my guess is through artificial support by government linked funds), but there were tremendous buying opportunities in other Asian countries, for instance in Hong Kong.

With hindsight, everything is easy. The difficulty lies in having the right mentality, to invest when all the news is bad, and to sell when all the news appears to be good. A decent way to deal with this problem is dollar cost averaging, invest the same amount of money each month.


  1. FBM KLCI is damn strong! Even US sovereign bond is downgraded or PIIGS sovereign debt crisis it still remain intact! If it crash like what happen in other markets definitely I will top up a lot. Nvm thanks to internet I can go other market to pursue companies within the industry that I love. Btw have you sense another bubble in equities! Those with higher dividend had been highly sought after for last few years. For some of the counters the yields are totally unattractive at all but the price is still climbing up. Do you think that they will be another bubble in the future. Personally I believe that it will be another bubble in 3-5 years. No doubt companies with higher risks are almost dead but they will have a come back when global economy recover. I have no idea what is the time frame for the risky counters to make a come back but I strongly the day will come.

  2. Marc Faber: money printing all over the world leads to certain bubbles (at the moment, certain government bonds yielding almost zero, certain property, certain shares). He thinks there will be a large correction down the road, but more early than 3-5 years. Then there will be a huge buying opportunity. On the other hand, he still likes selected shares in Europe (bombed out) and Asia.