Times have been extremely chaotic. There are some glaring signs of immense fear that signals for the value investor to awaken from hibernation and pick up some bargains:
1. Long queues outside financial institutions
When the sub-prime crisis brought about a possible collapse of AIG, the local policyholders started surrendering their insurance policies despite repeated calls from MAS that everyone's money is safe. Investors started dumping their holdings in the stock market for fear of greater implications to come. We read of news where policyholders said that they felt "safer in having cold hard cash from AIA." This a definite sign of mass panic and investors riddled with immense fear.
2. A wildly gyrating stock market that fluctuates +/- 10% or 1000+ points over 5 days
Dow Jones Industrial Average swung by a difference of 1000+ points over a short period of 5 days, driven by a mere piece of news of a possible US$700b bailout plan by the US government. This is a colossal move of 10+% in a matter of days and is purely irrational behaviour.
3. Do you also feel the fear and stampeding tremors too?
The fear of a financial meltdown and currency fallout was so prevalent and real that at a point in time even I, an ardent impassioned and rational person, was influenced to think that it might be a wiser choice to stay by the sidelines and do nothing but hold on to cash.
Fear is such a powerful weapon, where there was once I started doubting my own judgments. It was an immense internal struggle on whether to-act or not-to-act. However, the better half of me eventually won: I decided to make a move now.
Fear is such a powerful weapon, where there was once I started doubting my own judgments. It was an immense internal struggle on whether to-act or not-to-act. However, the better half of me eventually won: I decided to make a move now.
Be greedy when everyone is fearful
The greater the fear is, the greater courage the value investor must have to act in a rational manner that will go in the opposite direction of the stampeding herd; only then will he be able to reap gains when the time comes.
This reminds me of how Warren Buffet recently acted to acquire a US$5b stake in Goldman Sachs.
As long as (1) the financials of the company have been evaluated to be sound, and (2) there is a significant margin of safety in the price to intrinsic value, and (3) there are good prospects and growth drivers for the company to grow continuously even in recessionary years, the value investor must trust in my own independent judgment and make decisions based on that.
This reminds me of how Warren Buffet recently acted to acquire a US$5b stake in Goldman Sachs.
As long as (1) the financials of the company have been evaluated to be sound, and (2) there is a significant margin of safety in the price to intrinsic value, and (3) there are good prospects and growth drivers for the company to grow continuously even in recessionary years, the value investor must trust in my own independent judgment and make decisions based on that.
I have started to do my shopping. Have you?
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