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11-12-2011, 09:06 AM
I feel this is extremely bad advice! Teaching people how to be speculators instead of investors! 
The Straits Times
Dec 11, 2011
small change
Here's how to make money in a bear market
Buy blue chips when they are down and take profit as soon as there's a brief rebound
By Goh Eng Yeow
Since August, fresh stock market jitters have sparked worries as to whether we may be facing another long, dark stretch that will require new skills and investment strategies in order to make money.
For those of us with long memories, the nightmarish market conditions that existed for years after the 1998 Asian financial crisis come to mind.
To recap, Singapore enjoyed one of its biggest bull runs in history between 1993 and 1996, as yield-hungry foreign fund managers poured billions of dollars into Singapore stocks in search of higher returns.
But all came to grief in July 1997 when Thailand lost its fight against speculators who bet on the Thai baht plummeting against the greenback because of the cash-flow problems faced by its conglomerates in servicing their huge US-dollar loans.
The resulting contagion spread like wildfire across Asia, engulfing other economies such as Malaysia, Indonesia, South Korea and Hong Kong.
Although the situation stabilised 16 months later, as the United States central bank's soothing brew of interest rates cuts slowly eased the credit crunch that rocked the market, it took years for Asian economies to recover their poise.
Between July 1, 1997 and Sept 4, 1998 - the low point in the crisis - the benchmark Straits Times Index (STI) sank by 1,118 points, or 58 per cent, to a 12-year low of 805.04. It then recovered by 1,778 points, or 221 per cent, to a high of 2,582.94 on Jan 3, 2000, before sinking 1,341 points to a post-crisis low of 1,241 on Sept 21, 2001.
It would take another 5� years after that, before the STI could muster sufficient strength to cross the 3,000-point barrier on Jan 3, 2007.
Now, consider the resemblance - at least superficially - which the euro zone debt crisis bears with the Asian financial crisis.
In the past 18 months, the contagion triggered by Greece's perceived inability to service its public-sector debts had spread like wildfire all over Europe, with the bonds issued by other heavily indebted countries such as Italy and Spain all coming under attack by speculators.
To rub salt into fresh wounds, the euro zone's six remaining triple-A rated countries - Germany, France, Austria, the Netherlands, Finland and Luxembourg - had been warned that their credit ratings might be under threat as well.
For investors, the biggest nightmare is that the crisis seems to run on and on with no end in sight. Each time a flare-up has been doused, another more intense one erupts somewhere else in Europe - to the dismay of those who mistakenly believe that the crisis has been resolved.
Given the intimate manner in which bourses across the globe are connected with one another, this has triggered wild price swings among regional stocks each time a fresh spate of bad news from Europe hits the market.
For those who have lived through the dark days of the Asian financial crisis, the many rebounds and subsequent plunges in share prices over the past few months offer a chilling reminder of what happened more than a decade ago.
But while the overall sentiment may be bearish, there is no need for investors to despair.
One salient observation is that bearish markets rarely move down in a straight line without making a rebound - however brief that may turn out to be.
During the Asian financial crisis, there were nine occasions between July 1997 and August 1998 when the STI rose by 5 per cent or more over periods which stretched between two and five days.
Among these rallies, there were three occasions - early September 1997, mid-January 1998 and the start of February 1998 - when the STI surged by at least 15 per cent, even though the overall market trend was bearish.
There is plenty to suggest that history may repeat itself with the euro zone debt crisis.
One recent example is the powerful stock market rebound which was experienced the previous week, when the world's central banks, led by the US Fed, joined hands to ease the growing credit crunch by slashing the costs of US-dollar loans to cash-strapped European lenders.
Going forward, central banks are likely to offer more pain-relieving measures in order to buy time for Europe to sort out its debt problems.
In order to benefit from the wild price swings as a tug of war breaks out between the bullish traders who believe that the worst is behind them and the bearish ones fearing that more pain lies ahead, investors will need to adopt a more opportunistic approach.
For now, investors will have to suspend the usual 'buy and hold' strategy - and adopt a contrarian approach instead.
This will require them to boldly venture into the market to buy when they believe that blue chips are badly bruised by the sell-off and take profit on their purchases if a rebound materialises.
Given the likelihood that interest rates will stay abysmally low as central banks fight the fresh credit crunch which threatens to freeze up bank lending, investors should also be on the lookout for high dividend-paying stocks.
One word of caution, though. Each time an investor comes across a stock paying a high dividend, he has to make sure that the company's business model is viable enough to make future payouts sustainable, given the uncertain business climate.
Sure, we may be years away from another bullish market which will propel the STI past the all-time high of 3,875.77 reached on Oct 11, 2007.
But as the Asian financial crisis showed, money-making opportunities abound during a bear market. What is needed is a little courage to buy when everyone else has given up in despair. Fortune smiles on the brave-hearted investor.
engyeow@sph.com.sg
The Straits Times
Dec 11, 2011
small change
Here's how to make money in a bear market
Buy blue chips when they are down and take profit as soon as there's a brief rebound
By Goh Eng Yeow
Since August, fresh stock market jitters have sparked worries as to whether we may be facing another long, dark stretch that will require new skills and investment strategies in order to make money.
For those of us with long memories, the nightmarish market conditions that existed for years after the 1998 Asian financial crisis come to mind.
To recap, Singapore enjoyed one of its biggest bull runs in history between 1993 and 1996, as yield-hungry foreign fund managers poured billions of dollars into Singapore stocks in search of higher returns.
But all came to grief in July 1997 when Thailand lost its fight against speculators who bet on the Thai baht plummeting against the greenback because of the cash-flow problems faced by its conglomerates in servicing their huge US-dollar loans.
The resulting contagion spread like wildfire across Asia, engulfing other economies such as Malaysia, Indonesia, South Korea and Hong Kong.
Although the situation stabilised 16 months later, as the United States central bank's soothing brew of interest rates cuts slowly eased the credit crunch that rocked the market, it took years for Asian economies to recover their poise.
Between July 1, 1997 and Sept 4, 1998 - the low point in the crisis - the benchmark Straits Times Index (STI) sank by 1,118 points, or 58 per cent, to a 12-year low of 805.04. It then recovered by 1,778 points, or 221 per cent, to a high of 2,582.94 on Jan 3, 2000, before sinking 1,341 points to a post-crisis low of 1,241 on Sept 21, 2001.
It would take another 5� years after that, before the STI could muster sufficient strength to cross the 3,000-point barrier on Jan 3, 2007.
Now, consider the resemblance - at least superficially - which the euro zone debt crisis bears with the Asian financial crisis.
In the past 18 months, the contagion triggered by Greece's perceived inability to service its public-sector debts had spread like wildfire all over Europe, with the bonds issued by other heavily indebted countries such as Italy and Spain all coming under attack by speculators.
To rub salt into fresh wounds, the euro zone's six remaining triple-A rated countries - Germany, France, Austria, the Netherlands, Finland and Luxembourg - had been warned that their credit ratings might be under threat as well.
For investors, the biggest nightmare is that the crisis seems to run on and on with no end in sight. Each time a flare-up has been doused, another more intense one erupts somewhere else in Europe - to the dismay of those who mistakenly believe that the crisis has been resolved.
Given the intimate manner in which bourses across the globe are connected with one another, this has triggered wild price swings among regional stocks each time a fresh spate of bad news from Europe hits the market.
For those who have lived through the dark days of the Asian financial crisis, the many rebounds and subsequent plunges in share prices over the past few months offer a chilling reminder of what happened more than a decade ago.
But while the overall sentiment may be bearish, there is no need for investors to despair.
One salient observation is that bearish markets rarely move down in a straight line without making a rebound - however brief that may turn out to be.
During the Asian financial crisis, there were nine occasions between July 1997 and August 1998 when the STI rose by 5 per cent or more over periods which stretched between two and five days.
Among these rallies, there were three occasions - early September 1997, mid-January 1998 and the start of February 1998 - when the STI surged by at least 15 per cent, even though the overall market trend was bearish.
There is plenty to suggest that history may repeat itself with the euro zone debt crisis.
One recent example is the powerful stock market rebound which was experienced the previous week, when the world's central banks, led by the US Fed, joined hands to ease the growing credit crunch by slashing the costs of US-dollar loans to cash-strapped European lenders.
Going forward, central banks are likely to offer more pain-relieving measures in order to buy time for Europe to sort out its debt problems.
In order to benefit from the wild price swings as a tug of war breaks out between the bullish traders who believe that the worst is behind them and the bearish ones fearing that more pain lies ahead, investors will need to adopt a more opportunistic approach.
For now, investors will have to suspend the usual 'buy and hold' strategy - and adopt a contrarian approach instead.
This will require them to boldly venture into the market to buy when they believe that blue chips are badly bruised by the sell-off and take profit on their purchases if a rebound materialises.
Given the likelihood that interest rates will stay abysmally low as central banks fight the fresh credit crunch which threatens to freeze up bank lending, investors should also be on the lookout for high dividend-paying stocks.
One word of caution, though. Each time an investor comes across a stock paying a high dividend, he has to make sure that the company's business model is viable enough to make future payouts sustainable, given the uncertain business climate.
Sure, we may be years away from another bullish market which will propel the STI past the all-time high of 3,875.77 reached on Oct 11, 2007.
But as the Asian financial crisis showed, money-making opportunities abound during a bear market. What is needed is a little courage to buy when everyone else has given up in despair. Fortune smiles on the brave-hearted investor.
engyeow@sph.com.sg
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/
