Monday, January 15, 2007

The darkest hour is the beginning of dawn

The market always turns around when it is most negative. The best time to buy is at the end of a bear market. Here, the risk is low and the reward is high. Entries at this time will be safe, and if you pick the right stocks and adopt the buy & hold strategy, your returns will be enormous.

The end of a bear market is usually marked by heavy volume accompanied by a steep drop. This is known as a panic sale. Fear will be in everybody’s face and everyone will be scrambling for the exit door. Gloom and despair are seen everywhere. Overly pessimism will cause the market to be oversold.

After the panic sale, the market may suddenly burst back to life and shoot up. An example of this happened in the financial crisis in 1997/1998. If I am not mistaken, it was on September 1, 1998 when Malaysia commenced capital control. On that fateful day, the KLCI plummeted some 100 points to 261.33. But it bounced back more that 100 points the following day. Such was the velocity of the market then.

Those who survived the onslaught and had the guts to buy, had invested wisely. I am glad to say, “I am one of the survivals”.

Buy in fear! Do you have the guts?