Market Hazards

Like Lucky, I have spent most of my last three weeks tracking the subprime crisis, the market and my portfolio. Blogging comes second to watching my housing and retirement funds. Perhaps I would write something about the economics of it some other day when things are calmer. When the market is in this mood, there is really not much point in talking about fundamentals. Even as I tried to offload stocks over the past weeks to stem the losses, my portfolio kept shrinking. I am not losing sleep yet, but it doesn't feel good.

This morning, the STI fell below 3000 points, a decline of nearly 5 per cent at one point. I searched and asked around for the 'trigger' - what new information came into market to trigger this morning's selloff. Apparently, there was none. One analyst said that the market was very frightened, but it was not entirely sure what it was frightened off. A friend of mine working in the finance industry told me that we were in the "tail chasing dog" territory. The sharp fall was trying to find a reason to justify itself !

Indeed, as I look at the balance sheets of some of the blue chip companies, their profits, the cash they hold, there simply isn't any credit or liquidity crunch of any sort. But I remember a quote, "The market can stay irrational longer than you can stay solvent." Nevertheless, the market cannot stay irrational forever. Looking at the valuations of some of these companies, it would be irrational of me not to put money in. So even though my trading screen was flushed with a sea of red, with trembling hands and a pounding heart, I clicked some buy buttons this afternoon.

[Latest: STI rallied from nearly 180 down to close with negative 20. US Fed has cut lending rate to banks.]

As the day closes, it appears that world markets might have just dodged a bullet today. But be warned, there would surely be more bullets to come. Like Lucky says, we are going through an interesting but terrifying time. My personal take is that one should never aim to eliminate all financial risks and forego all potential returns. Having a clear head about personal finances, staying invested and learning to cope with risks would be a better strategy.