DOES STOCK MARKET MOVE IN A LINEAR PATTERN?

"Not everything moves in a linear pattern, especially stock market"

When there is greed, there is fear,

When there is bull, there is bear.

When there is optimistic, there is pessimistic

When there is confident, there is uncertain

When earnings goes up, share price goes up. (NOT NECESSARY, DEPENDS ON THE SENTIMENT OF THE MARKET)

In short, most people are programmed to think in a linear way.

Example:

Guess which country is it?  Properties prices goes up in the last 60 years? Yes, until sub prime hit USA.

Japan properties goes up and up until 1990.  Before that, no one in Japan heard about property prices can go down.  Today, after 25 years, property prices in Japan is about 60% from its peak.

THEME STOCKS

Similarly to theme stocks.  Look at all the oil and gas companies in Malaysia.  Fund manager was so confident.  Retailers are so sure. Stocks are not effected by internal factors, but, also external factors that is not within the management control.  It can change quickly, look at our currency (suddenly prices of imported goods increase 20%, but I am not sure if it can come down).

When Bursa shares came down for so many weeks, we thought it was mainly due to crude oil prices, and partly due to 1MDB scandal, so, the crude oil has rebounded 10%, our stock market goes up less than 1%.  (so is our currency).  Yes, it is very easy to extrapolate a business plan, I worked for property companies, with great land, projected the profit from 2m, 20m, 50m, 120m, 300m.  All it takes is a crisis like the last few months, to make the banks change their lending policies.  I remember many years back, the mortgage broker told me, ecourage me to take up a loan from a bank, and I will be given a free ticket to Shanghai.  Today, do you think you can get the same treatment from the bank.

So, please be careful with theme stocks, I have seen many companies profits goes up for past few quarters goes up, prospect is good, fundamental is strong, but the PRICE actually goes down.  So, please do not use science to predict the future, where the stock market is actually effected by sentiment.  No point saying what if, some of the what if already happenned.

So, theme stocks are great, like the musical game, we do not know when it stops.  Instead of theme play, I believe anyone can be played by the theme.  Don't you agree?  So, the issue is, who get out first will laugh to the bank.  But those who always play theme stock, ultimately, will be played by the theme.

WHAT EQUITY STRATEGY SHOULD WE ENGAGE NOW?

Do you have a plan?  Is your plan a well tested plan?  If yes, follow your plan.  If you have no plan, you need to start planning.  Many friends asked me, what do you think of the market (when it was going down sustantially)?  Will it continue to go down?

I always go back to the fundamental, do you have a plan?  How long is your investment horizon? What type of shares you buy, small cap, medium cap or defensive stocks with constant dividend yield higher than FD rate.  How much of your networth have you invested, 30%, 50% or 90%?

So, until you are clear about your amount, horizon and expectation, you will not be able to answer those questions.  You don't even know when to sell.

Will continue after dinner (hopefullY).

LiQUID STOCKS

Why some stocks PE is higher than the other in the same biz.  Some could be due to liquidity (many fund manager cannot buy them).  Some, of course, tightly controlled, lack of liquidity.  Look at SEGI's volume over the past 10 years.  Some stocks can be manipulated due to lack of liquidity. Of course, many time analysts are correct during the bull market.  What about bear market?  Look at FGV, AAX, AirAsia, Maybulk.

WALL STREET VS MAIN STREET (updated Sunday)

Right before the 2008, the household debts (mortgage loan, credit cards, student loans, car loans, etc) is USD13.957 Trillion vs today (2015Q1) USD13.568 Trillion, a drop of about USD431b.  Percentage of household debt over salary and wages sore from 80% to 140% to 220% (1970 to 2000 to 2008).  And today's figure is about 180%.

During the last 80 months since 2008, under the ZIRP Fed scheme, only the Wall Street guys benefited.  It is like a new casino is created for this greedy Wall Street guys to show-off their talent in carry trade will the Main Street savers pay for their sins.  Guess who joined the bandwagon (the board and senior staff) of ECB, BOE, BOJ, PBOC singing the same Keynesian monetary stimulus song, pumping liquidity and inflating the financial assets (properties, bonds and stocks).

It is the 90% middle income fella from Main Street who is financing the casino for the C-suites of corporate American of Wall Street buggers who is running the gambling parlors.

In short, another casino was created when the last one was shut down on sub-prime properties.  I have not mentioned, another elephant in the room is derivatives which are not regulated by the Wall Street wolves.  And the hedge funds (getting ZIRP) in fact benefited a whole lot during the last 80 months since 2008, and who would want to shut down the party or close the tap.

The only different between the US Fed and the Chinese PBOC when carrying out their Ponzi scheme, one did very professionally, while the other is doing it with control.