Now, the sage has billions and billions of dollars, people followed his words like prophet. But true to how people follow prophets, people only recite the words, but never put those words into action.
Is there fear in the market? In abundance. Abundance of fear. So, it is time to start having an abundance of greed.
Stock today (October 31 2008) has been in heavy discount compared to the same time last year, average 10 year PE level for S&P 500 is at 15.7, you can be certain that the current PE level for emerging market had also fallen compared to last year’s.
Now, you don’t want to buy individual stocks, it’s stupid to buy individual stocks now, nobody knows which direction of each individual stock will take.
What you want to buy is mutual funds, preferably those with large exposure to a country’s or region’s economy. Why buy such large exposure mutual fund? Because, there’s a good probability that in 2030 the US economy, the emerging nations economy, will have grown compared to what it was in 2008. By that time, we can also expect that the stock market will have followed that growth.
Also notice the time horizon; we’re here to hold that mutual funds for another 10 years, 20 years, we’re here to bet that the economy will have grown by 2020 or 2030. And history has shown that such bet usually comes true.
Yet, some people will ask, “What if the world economy has not recovered from the 2008 malaise? What if there’s minimal growth between 2008 and 2030?” well, in that case, it doesn’t matter whether you put your money in bonds, in CDs, in your closet, the world had just tanked.
So, if this is a horse race, you should be placing your horses on the starting barrier.
Now, what should trigger us to start the race? When should we start the race?
Stocks has gone up and down in the last couple of weeks, man, if I have a good computer that can zap-zap my trading decision and execution, I would go into the market since last week. But again, I don’t play individual stocks, and I’m not sure that the mutual funds that are based on these stocks follow the movement of the stock price with total efficiency.
If we want to buy mutual funds, we need to be go in when the market is low enough to ensure handsome return when we exit the market in 10 or 20 years, but we don’t want to go to early to spend too many years for the downturn and rebound to our purchased value.
You see, it’s impossible to time the market perfect, the best you can do is to buy during the downward slope of the economy, then brace it when price keep falling before it start to go back up.
What not wait to enter until the upward slope? If the upward slope is already that apparent, there’s not much upside you can gain from the market.
So you need to go in at the downward slope, but you want it to be as close as possible to the nadir.
Have we seen the nadir of the economy?
Apparently not, at this moment (1 Nov 2008), reports just came in that the US consumer are spending less in the 3rd quarter of 2008. This will mean lower Q4 earning report for corporations that market their product to US customers (a whole bunch of corporations). This means further unemployment, leads to lower consumption.
I think we are still far from the nadir. To far to be convenient invest.
I don’t know, if I know I don’t need to spend my time writing a blog.
But there are indicators.
I suspect that consumer spending on the holiday season will be just as worst. This will bring a double whammy on Q1 2009, lower revenue on corporations from Q4 2008 and the effect of unemployment and reduced paycheck from Q3 2008 becoming apparent.
Q2 2009 might also still feel the impact of the slowdown in the real economy.
Several assumptions need to be fulfilled for the above estimates to materialize:
1. The financial crisis is pretty much contained. That there’s no second spillage from the financial crisis to the real sector.
2. Holiday spending is as bad as Q3 2008 spending
3. The US Government don’t increase spending or the spending increase does not give enough momentum to allow a rise in the real economy by Q1 2009
4. The US government didn’t come up with a workable spendable stimulus for the US consumer, or the stimulus also doesn’t give enough momentum
What will I do now
Now, I will research what funds I can buy to access the US and other markets.
I will save my money in a high yield time deposit (such thing still exist in Indonesia)
Then, when I’m ready to take some momentary loss for very long term gain, I will buy equity.
If you also around 20 years old, and can afford a extended investment horizon, well, decide for yourself, and invest at your own riks.