The economics journalist is tired and burdened with some personal issues. So this post will be kept summarized and short.
Dow fell more than 2% last Friday, causing panic in most Asian markets the following Monday with fears of burgeoning sub-prime mortgage risk in the U.S. Bear Sterns with their affected under-performing 2 hedge funds with large credit risk exposure (to the sub-prime mortgage risk), Macquarie Bank from Australia, and shortly the liquidation and bankruptcy of American Home Mortgage Investment Group lead the pack in a bear push in the global financial meltdown. The news sent investors rushing to liquid their shares for fears of more downturns. Of course, this lead to a domino effect. Singapore was badly hit at down ~3%. Only the Shanghai Stock Exchange was not battered an inch and went on to register a slight hike, which I suspect is due to the Chinese optimism of their red hot economy.
The next day, the US stock market bounced back strongly prompting other stock markets around the world to follow. SGX, with the news that exposure to the sub-prime mortgage risk in the US in the 3 local banks as minimal gained strongly, mimicking the US scenario. It seems to me that selling and buying of shares, and in turn leading to ups and downs of the markets, have been primarily fueled by emotional and perceptive actions rather than based on hard facts. Take for example you bought a share at $10. Last Monday, it fell to $8. You panicked and sold it off. On Tuesday, you looked in disgust as the share climbed to $9. You gained confidence and purchased back the share at $9. It closed at $10. So what have you lost? ($10-$8)+(-$9+$10)=$1? No. You did not. You have lost far more than that. You lost (1) transaction fees when you sell and buy the shares. (2) emotional strain. While I am in no position to comment on the mechanics of the market , I believe that what is more important is: the company fundamentals. As long as the company is fundamentally strong, there's no reason to sell out in bearish times as it should perform positively in the long run.
Yet, just when I am typing this post, the US market is taking another tumble with the Dow falling more than 100pts and other major indices like Nasdaq and S&P 500 going south. This is reported to be due to BNP Paribas freezing three securities funds that struggled to find liquidity in the U.S. subprime mortgage market. Other reasons include credit risk exposure being almost impossible to quantify and investment banks taking the most hit from this episode. Although ought to learn their lesson, there's high probability the Asian market will be taking hint from the west again. Should it happen again, it will present another good opportunity to grab gems on the cheap.
The human mind has the uncanny ability to turn a blind eye to facts and play on emotion and (usually distorted) perception. And like sheeps, they flock in groups. Herd mentality.
I read this statement somewhere and although I have no way of authenticating it, I like what was stated: Einstein once said,"There's 2 things that are infinite in the world. The Universe and human stupidity. And I wasn't sure about the Universe."
Dow fell more than 2% last Friday, causing panic in most Asian markets the following Monday with fears of burgeoning sub-prime mortgage risk in the U.S. Bear Sterns with their affected under-performing 2 hedge funds with large credit risk exposure (to the sub-prime mortgage risk), Macquarie Bank from Australia, and shortly the liquidation and bankruptcy of American Home Mortgage Investment Group lead the pack in a bear push in the global financial meltdown. The news sent investors rushing to liquid their shares for fears of more downturns. Of course, this lead to a domino effect. Singapore was badly hit at down ~3%. Only the Shanghai Stock Exchange was not battered an inch and went on to register a slight hike, which I suspect is due to the Chinese optimism of their red hot economy.
The next day, the US stock market bounced back strongly prompting other stock markets around the world to follow. SGX, with the news that exposure to the sub-prime mortgage risk in the US in the 3 local banks as minimal gained strongly, mimicking the US scenario. It seems to me that selling and buying of shares, and in turn leading to ups and downs of the markets, have been primarily fueled by emotional and perceptive actions rather than based on hard facts. Take for example you bought a share at $10. Last Monday, it fell to $8. You panicked and sold it off. On Tuesday, you looked in disgust as the share climbed to $9. You gained confidence and purchased back the share at $9. It closed at $10. So what have you lost? ($10-$8)+(-$9+$10)=$1? No. You did not. You have lost far more than that. You lost (1) transaction fees when you sell and buy the shares. (2) emotional strain. While I am in no position to comment on the mechanics of the market , I believe that what is more important is: the company fundamentals. As long as the company is fundamentally strong, there's no reason to sell out in bearish times as it should perform positively in the long run.
Yet, just when I am typing this post, the US market is taking another tumble with the Dow falling more than 100pts and other major indices like Nasdaq and S&P 500 going south. This is reported to be due to BNP Paribas freezing three securities funds that struggled to find liquidity in the U.S. subprime mortgage market. Other reasons include credit risk exposure being almost impossible to quantify and investment banks taking the most hit from this episode. Although ought to learn their lesson, there's high probability the Asian market will be taking hint from the west again. Should it happen again, it will present another good opportunity to grab gems on the cheap.
The human mind has the uncanny ability to turn a blind eye to facts and play on emotion and (usually distorted) perception. And like sheeps, they flock in groups. Herd mentality.
I read this statement somewhere and although I have no way of authenticating it, I like what was stated: Einstein once said,"There's 2 things that are infinite in the world. The Universe and human stupidity. And I wasn't sure about the Universe."
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