Sunday, May 9, 2010

Some perspectives on recent market turmoils

The markets have been extremely nervous, I do not wish to contribute more fears by injecting more negative thoughts but I'm trying to share my thoughts.

Greece fallout was the beating boy, has been quoted as "catalyst" of the recent market correction. If you read blogs and any other commentators, most of them will not believe that this was the catalyst. Most will think it's natural thing for the markets to correct because since the bull market started in March 2009, we hardly had any serious corrections. In the last 7 pull backs had been very minor, only 5-8%. We need some serious pullback to test whether there are real buyers out there, before resume with second wave of this bull run.

The speed of the pull back surprised me as I thought it will move sideways for a couple of months, losing more than 10% in less than 10 days was serious.

Back to our own market, I have not seen any pull back more than 100 points from a new high. Here are very rough estimate on the KLCI pullbacks.

These kind of very shallow pullbacks(3-5 trading days with 3-6%) certainly had reinforced people not to afraid but to buy on dip.

There is some kind of believe that our market is much more resilient than others.

The chart will tell you that there were 4 failures attempted to break through 1350. Since the odds were not good, I took profits purely due to Mr. Market has changed his mind, selling for lower price regardless of the value of his business. So, I wound down the higher beta stocks first. My view on how much cash one should hold should be evaluated based on riskiness of holdings. If one has 90% high beta stock, I would wind it down to 90% cash, without a need of second thought. If I have 90% low beta stocks, I would be very comfortable to leave my portfolio alone at 30% cash.

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