Monday, 16 March 2020

To Buy or Not To Buy

Last week, US stock market just recorded the biggest single-day jump since 2008, with DJIA up more than 9%.

Today, KLCI dropped another 64.12 points or 4.77% to close at 1,280 points. Another bloodbath day.

Either you have a bit of cash or lots of cash, surely you are asking yourself:

- When is the best time to buy stock?
- What is the best stock to buy?
- This stock's share price has dropped 50%. Can I buy now?
- That stock's PE ratio is just 5x. Can I buy now?

Everyone dreams of buying at the lowest point, AND catching the stock which rebound the most. Yes it can be done, only in dream.

Stock market is like a roller coaster recently. Today the market fell the most since so many years, then the next day it jumped the most in recent history.

This morning you saw the stock market dropped like hell and you felt relieved that you didn't buy any shares yesterday.

Later in the afternoon all the stocks shot up 10-20% from low and you regretted not buying in the morning.

Then the next day those shares fell to new low and you felt very lucky that you didn't buy yet.

Investors' emotion are also riding on a roller coaster.

So, when is the best time to buy shares in this situation?

No one will know the lowest point for sure. Today might be the lowest point, you buy now you win. May be Dec 2020 will be the lowest point, you buy now then it's not ideal.

During 2008's bear market, KLCI started to drop from its height in early Dec 2007 and only reached the bottom in early Oct 2008. So it took 10 months to reach bottom.

It then lingered at the bottom for around 5 months until early Mac 2009, when it began its uptrend journey and met its previous high in May 2010.

Financial crisis 2008 took 10 months to drop, 5 months to rest until it showed sign of bottoming out.

So, isn't it ideal to enter the market during the 5-months trough?

Currently, even though KLCI has its previous high of nearly 1,900 points in April 2018 which is almost 2 years ago, the actual bear market feeling only started from Jan 2020 when the KLCI was 1,600 points.

In 2008, KLCI dropped approximately 40% from 1,450 to 850 points. If it were to drop in similar magnitude, we might see KLCI drop another 300 points to 1,000 points.

If Covid-19 is the main culprit of current bear market. Is the worst over? Far from over.

Europe's numbers are rising alarmingly, so does Malaysia.

Yesterday there was 190 new cases of Covid-19 in Malaysia. Today there are another 125 new cases, bringing the total to 553 cases.

We all know what is the situation like now, the virus has already spread among the public. We should see many more cases being confirmed in the coming weeks.

It might be a matter of days when our numbers exceed 1000 and grow exponentially.

We don't have the luxury to hospitalized all confirmed cases by then, and we need the discipline of self-quarantine. 

We won't have enough ventilators to support those who are ill with severe pneumonia as well.

How about the other countries with relatively low count now? Is that logically possible? I think it is only possible because there are not many screening or contact tracing done. If those countries explode, the neighbouring countries might get second wave or third wave of outbreak.

The virus threat will surely go away one day, just like what we witness in China & South Korea. By then, how much damage will it do to the world, and how long will it take to recover?

How many orders deferred or lost? How much the sales drop? How many loan repayment defaulted? How many companies will go bankrupt? How many people will be jobless?

Now, more & more leaders come out to warn that this time it will be as bad or even worse than previous financial crisis. Such acts only make the market plunge deeper.

For me, while it definitely does not look good at the moment, once the fear of Covid-19 subsided, people will continue to travel and shop right? Will we see a quick rebound?

Anyway, what we can do now is to play our part in fighting Covid-19 so that it will end early.

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