Source: biz.thestar.com.my/marketwatch Stock markets have been in a tail spin since last week after the Chinese stock market dropped by nearly 9%, sending shock waves around the world. Since then, the Dow Jones Index has had its worst week since 9/11 and Bursa Malaysia has fallen from levels since pre-Asian crisis 1997. Since last Tuesday, Bursa Malaysia has had 6 straight down days in a row, including an opening of -100 points Wednesday, 28 February 2007.
No doubt, Bursa was due for a correction after a sharp run up to 1,280 points and a surge in volume to a historic high of over 4billion shares in a single day. This is amazing volume considering the average Dow Jones volume of 0.5billion shares per day based on a quick look at this chart. From the knowledge I have gathered over the years, a surge in volume is usually a sign that it is time to sell. I was fortunate to have exited on Tuesday before the big sell off. I lost a lot of paper profit, but was fortunate to still have made a gain considering how the market has performed over the last week. Thus, the fact that bursa was due for a correction and in line with the fall in markets worldwide, the index has lost about 170 points in a span of 4 days.
Stock prices are falling to levels even below their recent run up as investors/speculators are panicking. Retailers would yet again be scared into hiding. It has taken a while for retailers to join the recent run up in the market as many have been burnt over the last 5-10 years. All those people buying with credit - whether it be contra trading or margin financing will be finding themselves with significant losses as a result of the past week. To make matters worse, margin calls are coming out and those who are unable to top up their accounts will see their shares forced sold in the market. For those of you who don't know what forced selling is - that is when a finance provider sells an investor's shares at whatever price to recover the money loaned to you. Basically, so long as there is a buyer, they will sell which is why some share prices are being depressed even further. So a word of advice: NEVER buy on credit no matter how great the market is at the moment. As you have seen, the market can turn around and erase all gains in a space of a few days!
So is it time to buy? The dust has yet to settle, so it would probably be better to wait a week or two. However, there is talk that it will take months for the market to recover. The technical rebound I was advised will not be that strong as it will be a chance for those who want to sell to dispose of their shares. I believe that if you have spare cash lying around, this is the time to pick up dirt cheap shares (following you've done your homework) at levels close to their lows. But you never know, if you buy now, they may go lower. So my opinion?...
My 2 cents:
1. If you have cash lying around, start buying slowly up to 50% of your cash holdings (ie. if you have $50,000, buy up to $25,000 worth or stocks. The other 25,000 is in case the market drops further).
2. Do your research and buy stocks with positive NTAs (Net Tangible Assets) in case you may need to hold on for medium to long term.
3. Buy stocks below their NTAs - there are many out there, just do your research.
4. Don't buy bankrupt companies unless you're a gambler.
5. Personally, I am going for cheaper stocks as I'm after percentage gains. If you buy blue chips and they move 50cents, you will make less than a 5% return. But if you buy a 20c share and it goes up 5 cents, you will make a 25% gain. You'll be surprised how many cheap, fundamentally good stocks there are in the market. These are cheap due to share splits etc. There are those that may argue regarding valuation etc.. but the fact is that Bursa is actually quite a speculative market and the chance to make big percentage gains is good so long as you pick the right stocks. At the same time, you wanna make sure your stock doesn't ever go to zero in the case you have to hold on to it for medium to long - so make sure they have a high NTA.
So good luck! Market opens in less than an hour.
Happy Trading.
No doubt, Bursa was due for a correction after a sharp run up to 1,280 points and a surge in volume to a historic high of over 4billion shares in a single day. This is amazing volume considering the average Dow Jones volume of 0.5billion shares per day based on a quick look at this chart. From the knowledge I have gathered over the years, a surge in volume is usually a sign that it is time to sell. I was fortunate to have exited on Tuesday before the big sell off. I lost a lot of paper profit, but was fortunate to still have made a gain considering how the market has performed over the last week. Thus, the fact that bursa was due for a correction and in line with the fall in markets worldwide, the index has lost about 170 points in a span of 4 days.
Stock prices are falling to levels even below their recent run up as investors/speculators are panicking. Retailers would yet again be scared into hiding. It has taken a while for retailers to join the recent run up in the market as many have been burnt over the last 5-10 years. All those people buying with credit - whether it be contra trading or margin financing will be finding themselves with significant losses as a result of the past week. To make matters worse, margin calls are coming out and those who are unable to top up their accounts will see their shares forced sold in the market. For those of you who don't know what forced selling is - that is when a finance provider sells an investor's shares at whatever price to recover the money loaned to you. Basically, so long as there is a buyer, they will sell which is why some share prices are being depressed even further. So a word of advice: NEVER buy on credit no matter how great the market is at the moment. As you have seen, the market can turn around and erase all gains in a space of a few days!
So is it time to buy? The dust has yet to settle, so it would probably be better to wait a week or two. However, there is talk that it will take months for the market to recover. The technical rebound I was advised will not be that strong as it will be a chance for those who want to sell to dispose of their shares. I believe that if you have spare cash lying around, this is the time to pick up dirt cheap shares (following you've done your homework) at levels close to their lows. But you never know, if you buy now, they may go lower. So my opinion?...
My 2 cents:
1. If you have cash lying around, start buying slowly up to 50% of your cash holdings (ie. if you have $50,000, buy up to $25,000 worth or stocks. The other 25,000 is in case the market drops further).
2. Do your research and buy stocks with positive NTAs (Net Tangible Assets) in case you may need to hold on for medium to long term.
3. Buy stocks below their NTAs - there are many out there, just do your research.
4. Don't buy bankrupt companies unless you're a gambler.
5. Personally, I am going for cheaper stocks as I'm after percentage gains. If you buy blue chips and they move 50cents, you will make less than a 5% return. But if you buy a 20c share and it goes up 5 cents, you will make a 25% gain. You'll be surprised how many cheap, fundamentally good stocks there are in the market. These are cheap due to share splits etc. There are those that may argue regarding valuation etc.. but the fact is that Bursa is actually quite a speculative market and the chance to make big percentage gains is good so long as you pick the right stocks. At the same time, you wanna make sure your stock doesn't ever go to zero in the case you have to hold on to it for medium to long - so make sure they have a high NTA.
So good luck! Market opens in less than an hour.
Happy Trading.
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