There is really no accounting for Mr. Market's behaviour. Just this morning, share prices were still holding up nicely and in the afternoon, they were all much weaker. It reminds me of Singapore's weather in recent weeks, sunny in the mornings and raining heavily in the afternoons.
If we were to comb the internet for possible reasons for the decline in share prices, we would see analysts putting the blame on China's poorer manufacturing data in May and Ben Bernanke's remarks which have been interpreted as a possible earlier tightening of money supply. As far as I am concerned, Mr. Market was itching to take profit and these are excuses.
Ben Bernanke's statement was made public last night and when I read the papers this morning, what really struck me was his statement that the Fed's current monetary policy is providing significant benefits and that "a premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further." (The Business Times, 23 May 2013, page 18.)
How do you think we should interpret Ben Bernanke's statement?
There is not going to be any change in the Fed's monetary policy, not until unemployment falls meaningfully and inflation is where they want it to be. So, the environment of low interest rates will persist and this bodes well for the stock market.
Now, with the declines in the stock market today, is the bear back? Some people have been waiting for the bear to come back for a long time, staying on the sides with lots of cash. They hope that this is the start of a bear market. Well, is it? Naturally, no one knows.
What I know and would like to remind everyone about is that prices do not go up or down in a straight line. They climb a wall of worries and go down a river of hope. The uptrend is still pretty much intact and pull backs are only normal. Today is another pull back and the worries are China's weaker data and, apparently, Ben Bernanke's statement.
With lower prices, now, we see better value. Of course, this is assuming that there are no material changes which will adversely affect our investments. If the fundamentals are unchanged, a good investment at a lower price offers greater value for money. Then, look at the technicals. If these are benign, we should be buying on weakness.
In a nutshell, if the fundamentals remain good and if the technicals are benign, pull backs are buying opportunities.
For those who are still interested in investing in AIMS AMP Capital Industrial REIT and Sabana REIT, their charts spot long black candles today. Their units are definitely more attractively priced now.
|AIMS AMP Capital Industrial REIT.|
So, what should we do? Prepare a list of the stocks we are interested in. Determine what are the prices we would like to buy at as well as the reasons backing those decisions. Remember, if we cannot convince ourselves why we are buying at a certain price, we really don't have a good reason to be buying.
Have a plan and follow the plan.
1. Have a plan, your own plan.
2. Help! I missed the boat.
3. Risks and rewards: TA and FA.