Saturday, March 29, 2008

Politics and investing

The recent post-election aftermath caused KLSE plunged 10% within one day got me thinking, are politics and investing inseparable, especially in Malaysia? Can one do 100% bottom up investing? iCapital recently said something interesting "For KLSE, we must not allow political paralysis to develop and become embedded. Political paralysis leads to economic paralysis. Economic paralysis leads to market paralysis." Answer to my questions is NO.

I went back to The Alchemy of Finance written by George Soros. He lost money on Japan market during 1987 market crash. See chart.

He misread the values of the society. He knew that the Japanese market was more over-valued than the US market. He thought the crash would start from Japan market. He made a big loss during the crash. He bet on the wrong direction, Nikkei 225 escaped death, it was a shallow dropped and recovered at much faster rate. Why? One phone call from the government to institutional investors and brokerage houses, the sell orders disappeared. Interestingly, retail investors absorbed foreign investors sell orders . To them, it was a patriotic thing to do. Soros got it technically right but politically wrong.

Moral of the story? Don't just read business section, read nation, read politics also.

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