Human nature seldom changes. When it comes to investment, value buying is still the best strategy. Fundamentals & values really matter eventually.
All bubbles are bound to burst. What is a bubble? Everything has a fair value. When the price of a stock exceeds its fair value, a bubble is formed. As the price moves higher and higher, the bubble becomes bigger and bigger. At the height of any bull market, someone will say, this time it's different. In reality, it will not be different. All bull markets will end in a speculative binge. When newbies enter the market in droves, when IPOs become more and more popular, and when people are throwing cautious to the wind, becoming more and more greedy, you may rest assure that the bubble is about to burst.
The FBM KLCI closed at 1, 472.95 yesterday. Is there a bubble? Yes, I believe there is a bubble. Blue chips are trading at high PE. Prices are moving ahead of growth.
Is the bubble going to burst anytime soon? I don't think so. A meaningful correction is the likely scenario as the above-mentioned characteristics at the top of a bull market is not seen yet. When rubbish shares have also moved up to a high level, then I think, is the best time to sell everything. For now, buying better-class 2nd liners is the best option.
The gap between the blue chips and the 2nd liners have grown wider. This reflects that foreigners are buying into the market. Foreign fund managers are only interested in liquid big-capped blue-chip stocks. Foreign buyings can push up the index fast, but when they leave, it can plummet just as fast.
The stock market is always governed by hope, greed and fear. Hope is what keeps an investor or trader holding on to a failing stock. Greed causes you to buy late in a bullish run. It also causes you to hold onto a stock that has become overvalued. As for fear, there is fear of missing out an excellent opportunity, fear of not protecting a profit, and fear of losing everything. Fear can cause you into joining a panic sale and taking small profits.
Emotions play a great part in the stock market. We have to understand these emotions and control them, otherwise other people will control us.
Do not buy anything you do not understand. If you buy on a hot tip without understanding the fundamentals, a little outside noise can derail you from your track and causes you to sell out with a loss on an investment that is profitable.
Always do a due diligence before you buy. If you are not convinced that the company is solid, if you are not convinced that the company has growth and that it has much potentials to become a great company in the future, simply avoid it.
We do things for a reason or a combination of reasons, The next time you are about to buy a stock, write down all the reasons for buying it. Be it a whispered tip from your remiser, friends or a bullish article in the papers, just write them down. You will be amazed to read them some time later. You will then know how smart or foolish you have been.
There is no short cut to riches. If you want to be a savvy investor and be fully independent financially in your golden years, intelligent investing is an excellent way.
Cheers and happy investing!