There are some who wrote to me to ask what is the market direction now? Is it uptrend or downtrend?
Depending on who you speak to, or which website you read, you have two opposing views.
Those who claim that the market is going up based their judgement on the recent governments around the world injecting huge funds into the market. The US, the European countries, China with its latest US$586 billion stimulus package, and even Malaysia with its RM7 billion package.
Let's hope all the funds are channeled properly into development and benefit the whole country. Let's hope the funds do not only go to only a small beneficiaries.
However, it may takes time to see the market moving back up.
Next, there are those that say the market is going to get worse next year. They argued that the USA has been printing more money and injecting these funds into the market. According to them, these funds have no value whatsoever.
These same people likened the current situation to the Great Depression of 1929.
Now, where is the market heading? Where do you think the market will be by the same time next year? Will we see a higher performance or a lower performance. Only time can tell.
Wherever the direction is, are you going to stop investing? Are you going to stop your dollar-cost averaging? Are you going to stop saving your money?
I believe the market is cyclical. The great investor and trader W.D.Gann (you can Google and read more about this great man) had said that he was a strong believer that the market is cyclical. He even quoted from the Bible, Eccl. 1:9 that says:
The thing that hath been, it is that which shall be;And that which is done, is that which shall be done:and there is no new thing under the sun.
What is said here is that everything moves in cycles. The day follows the night, the night follows the day. The 4 seasons come one after the other. That is the way nature is. That is the way humans behave.
The Chinese have a saying too:
The flower is not 100 days red; And men are not 100 days well.
Some days we are down. Some days we are up. The flowers cannot be red all the time.
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4 comments:
I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
Sharon
http://www.autoloans101.info
Today's KLCI index has reached 1164. Yet, our economy don't seems doing good. Are index linked stocks over priced now? Am I correct to say that if the stocks are over priced, then we should not buy.Is P/E ratio and EPS good indicator of market stocks value?
If equity fund is not an option now, does that means we should invest in bond fun or balance fund now? What would be advisable strategy to use right now?
Hi (another) Anonymous, what's your name?
(It'll be good to leave a name so that I may not repeat the same thing if you have posted a question somewhere else.)
On your question, how do we know that the stocks are over-priced? Is P/E a good indicator? Yes, you are right, P/E ratio is a good indicator. I find it useful to use a Simple Moving Average indicator to depict P/E ratio graphically. Read this article: http://www.investopedia.com/articles/technical/04/020404.asp
EPS can also be used. However, don't limit yourself to just a few indicators. Based your judgement on the all the indicators that you can use. I think I mentioned in one of my articles, in a fight, don't just use your fist, if you can also use your elbow, knee, foot, head fingers, etc.
Going to basics, we can even use a simple trendline to see which way the graph is heading. If you think the equity fund is not an option, then stay away and hold your cash or gold. Bond fund is always a good investment. A small portion of your investment for long term should be bond fund. I have explained in an article on bond fund making good returns annually (http://www.unit-trust-investment.com/2008/02/11-how-to-earn-13-return-annually-from.html).
Balanced fund is another good strategy. However, when you invest part of your investment in bond fund, and part in equity fund, you are already creating some kind of 'balanced fund'. You can read KC Lau's book to understand more of this concept: (http://www.unit-trust-investment.com/2008/12/150-top-money-tips-for-malaysians.html).
However, you may not need balanced fund if you are already out of equity. Because if you believe that equity is going south, then the equity in a balanced fund is going to pull the fund price lower, right?
And if you believe that the equity is going up, do you still want to have 50% of your investment in bond fund? The concept of balanced fund is actually riding more on equity to gain return. When equity is rallying, the heavy investment in bond will slow down the overall price of balanced fund moving up.
Right now, the KLCI is still showing some strength to move up. This is just my opinion, please do your own due diligence/study. However, as I always said, be always monitoring the charts and ready to move out when the peak is reached. Study the chart closely.
Thank you master!
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