Posted by: donmihaihai | May 10, 2009

A note on Markets

From bear market rallies to “green shoots” and now “wait for the correction, the market is supercharged”, I must give market timers the highest respect for coming out with lot of “theories and convictions” as they spent lot of time doing the incredible job of timing the market. On the other hand, I have a hard time chasing stock price as the overall market is moving upward forcefully. Why can’t this bull wait for another week? I am doing some portfolio movement!!! The stock I am going to buy is still ultra cheap but I just hate to buy stock that is moving up… or as the overall market is moving up strongly. This create a disincentive for sellers to sell lower.

At this incredible bullish movement, there are talks that STI has reached bottom in March and a new bull market is formed. I think, chances are, yes STI reached bottom at just below 1,500 mark and any future bottom if the current rally become a sucker rally would not be too far from 1,500. But from a secular bull/bear market point of view, this is not a new bull market! For market timers, secular or not, it doesn’t matter, they want to get every turn RIGHT. And it doesn’t matter to investor who constantly buying when stock is cheap. But from those who are interested in market cycle as a whole or has a good study of market cycle which is cyclical, a secular bull or bear market is where maximum money can be make or loss over a period of 10 to 20 years.

US is still in their secular bear market that started in year 2000 and the current bottom may likely to be a major market bottom where stock is cheap and despair rule since the 1st peak in 2000. But like all secular bear market, bear will drag and bottom will be revisited, more rallies will suck in speculators and throw them out along the way until everyone want out. Just like the “death of equities” in early 1979 and “bond for investment and stock for speculating” before 1950. Secular bull market is formed not just by the depressed valuation but when memories of the old leave and memories of the new entered. It will be the new generation to carry the market into new heights. At this moment, US market is still washing out speculator, a good indicator here is no one is talking about buying US stocks or funds. This is a different environment compare to the bottom in 2003 where many are still holding on to Tech funds and buying on dips. Currently, I would be surprise if financial planner recommend holding of at least 30 to 50% for their client portfolio in US market. I mean why not? Every week, speculators are looking at US market for direction, and it is still the biggest market in the world with lot of world class companies trading there. I won’t be surprise that for the next 5 to 10 yrs or at least until after the start of new secular bull market we won’t be looking to buy US stocks and companies. Maybe at that time, it will be like “death of US and rise of emerging” it will be time to bet in US again. Or from now onward, every big market downward movement will be a good buying opportunity for US market. But before that, secular bull markets around the world haven’t run it course or at least in Singapore.

One of the reason why I do not believe current bull is a new one is that it does not smell like one. Everyone is so quick to get back or wanting to get back if I get the signal correctly, it is as if they are missing out the surge. So it is either like US, another sucker rally as secular bear market drag its tail or market recovering from setback and continue the bull market that started in 2003. I believe it is the second case.

If it is the second case and I wish for that as well, then our own secular bull market will has many more years to run and I wish to heard it, feel it and see it myself that valuation, fundamental doesn’t matter. This time is different. A whole new market. Stock trading at at least 40 to 50X earnings. Speculators who beat the market/ pro in group and value investor throw in and ride along. Yes Manias! I want to experience it myself, see the excess and that follow. Many of my friends will be in riding the manias and won’t get out in time but that does not stop me from wanting to experience a manias.

Many see stock investment equal to money no matter whether they invest or speculate. I treat it 1st a game that I want to win, a peak I want to reach knowing that money will of course follow. If I can’t conquer the mountain peak, I want to go as high as possible. Money or even reputation does not has the same satisfactionon as standing at the top of the peak.

It is a whole new generation which include myself are “playing stock”. Most of us entered stock market after year 2000. And it will be a rare case where there is someone who experience the early 1990s secular bull market that reached it 1st peak in around 1994 still around and buying stock as I am. But they are around, many are buying and keeping stock for dividends but they are not out at the front line, looking at the all the sexiest stocks.

The situation at 2003 if I get it correctly is the start of new secular bull market. And it took about 3 years to convince that this bull is for real so it was at 2005 or 2006 that the bull learn how to run. Running at increasing speed but stop short of manias in 2007/2008. Perhaps the bull is about to fly but springboard was chipped by US. But seeds already sowed, players already come onstage as the bull its setback. Climbing in as the bull continue to run.

Show has started and at half time, actors are having their break. as they come back, the drama will continue with lot of new actors and it will reach the ultimate climate. Actors that going to play significant roles at are….

1) Individual investor. Mostly 1st time buyers starting after 2000 and our profiles will show that we are at the age currently from teens to early 40s, most likely in the twenty-somethings to thirty-somethings.

2) Financial planner. An unlikely role it seem but they are going to be the one that put out interesting chart and data telling individual that you will never save enough, your CPF is not enough, you need to save and invest. This make the push to the stock market.

3) Local website like Next Insight and forum. Forum is the easy one to get while website like Next Insight is harder to grab. But for a place where the incentive is to paint a bright picture, it is a prefect place to lay rhythm.

4) Local investment blog like mine. This is another prefect place because it will encourge new comer that you can do it. Stock market is not just for the pro.

5) Analysts and all it related peers. They are always around but if the bull does reach late stage, Star analysts like Henry Blodget and Abby Joesph Cohen may appear.

6) Media. BT, Pluse,  The Edge Singapore, CNA, etc. Their role will help to push the market as the bull ride and point fingers to other as it bust. Never expect them to do what Allan Sloan did when he received his Leob Prize in 2001 and say, “Hey we are responsible too.” Just read BT recent commentary on pointing out  stock “Qain Hu“. It is a lousy written article with almost zero important facts being put out but that article mark a turn around as they have been bearish for so long. Article of same quality will keep appearing and as they don’t count failure, it may be a prefect place to breed star financial journlist

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Responses

  1. Nassim Taleb argued in the book “the black swan”, that investment finance is no hard science like physics, hence it makes no sense for ‘experts’ to exist in this field, let alone claim to be one or make sense to consult one.

    Maybe that’s the reason why it is a ‘level’ playing field for everybody in the stock market.

  2. No harm trying but there is a need to weight effort and results.

    Fat tail kind of thinking, in sense of extreme thoughts is out for me, whether it is EMH or everything happen by chance.

    money that I spent on “Fool by the Randomness and Dangerous Black swan” was wasted. I neither enjoy his books nor agreed with him. But I was impressed by his smart ways of looking at probability.


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