Opportunity abound among the crisis

On March 11, an earthquake that measured 9.0 on the Richter Scale rocked Japan. A massive tsunami ensued after that. A nuclear plant was also damaged, spewing radioactive materials into the atmosphere. This has caused massive fear in the stock market. The STI dropped from 3075 points on 10th March to 2935 points on 18th March. That was a 4.6% drop in the span of 6 market days.

On 15th March alone, the STI dropped 2.8% with high volume! Investors were in apprehension over the various news that were unfolding in Japan. However, yesterday, the Sunday Times front page screamed “Crisis shows signs of stabilising”. Today, CNBC reported that “some progress is seen at Japan reactors; US sees turning point”. I can only guess that the stock market will start picking up once again when the positive news start rolling in bit by bit.

So it can be seen that the market tanks when there is fear and anxiety. It will rise when there is positive news. However, amid all the fear and tension, we should always remember that the stock market is made up of pieces of businesses. The prices of shares drop due to market sentiment and not due to business failures per se.

Warren Buffett once said, “Be greedy when others are fearful and be fearful when others are greedy”. When investors are showing fear, it’s a good opportunity to buy shares at depressed prices as the market will only pick up, slowly but surely.

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6 thoughts on “Opportunity abound among the crisis

  1. Good for you!

    My problem is squeezing the trigger. Still waiting for the dust to settle down a bit.

    It’s a mental block of mine. I’ve not overcomed my personal fears yet……..

    When I see blood in the streets, I hide!

  2. Hi MW,

    Yea managed to buy a blue-chip for short-term. It’s a fundamentally strong company with very good FCF. Just that it’s overpriced even though it came down quite a bit for the past few days. I will sell it if it hits the pre-crisis price.

    Hi Singapore Man of Leisure,

    Take things slowly…. If you are uncomfortable, don’t squeeze the trigger yet.

  3. Hi FF,

    I personally think this phrase “be greedy when others are fearful and fearful when others are greedy” is a rather independent statement when it comes to individual’s risk profile and emotion management.

    I’ve once written a post about the statement above and I personally think that there is no real definition or gauge to see when other’s greedy or fearful.

    http://out-of-ratrace.blogspot.com/2010/08/be-greedy-when-others-are-fearful-and.html

    Using the chart that I posted on the post above, I’m pretty sure no one can tell if anyone is fearful at point 1, 2 or 3. and nobody could tell if anyone is feeling the exact opposite at point A, B or C.

    I think this is the part where the technicals come in, like to see overbought/sold regions, support/resistance and things like that. I’m semi FA too, so I’m definitely not advocating TA. haha!

    Just my 2 cents. :)

  4. Hi CJ,

    One doesn’t have to time the market. When he feels that the market is over-reacting (like in Japan’s case), he can just buy and even if it goes further down, it doesn’t matter as the price will recover to post-crisis price and beyond IF AND ONLY IF the company is fundamentally strong. I can’t say the same for a lousy company with extremely bad fundamentals. If the fundamentally strong company goes down further due to crisis, one can buy more. But he has to have deep pockets for this.

    For someone without a deep pocket, he can always buy once there’s a turnaround. Referring to your graph, I will buy slightly before A where there’s a turnaround. For this, TA surely comes into play. I use simple 25DMA and 50DMA crossovers and also see the 200DMA with support and resistance lines. I use TA too just like you.

    But for the Japan crisis, the turnaround was too fast and this is usually the case for a small crisis. Just like the Egypt one. For this, TA isn’t that helpful as once TA confirms a buy signal, price would have risen so much that it’s back to pre-crisis levels. For this type, one has to heed the saying “Be greedy when others are fearful” and JUST DO IT!

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