Master Rider Blog

Heightened Volitility

October 12th, 2007 NW Teong

A quick glance at the global indices seems to tell us that the global stock markets are enjoying one of its best bull cycle. However, precisely due to the record-breaking levels (and hence richer in terms of valuation), the markets will be very volatile looking forward. Despite having plenty of liquidity, the under current is very strong meaning that the market swing could once again be wild. As I mentioned in my blog “Liquidity Play Intact” dated 10 Oct 2007, I have advised investors to put in place a profit-locking (or cut-loss) mechanism. This practice should be in place all the time and is especially important at moment like this. I view this as especially important when the surge in stock prices is due to liquidity or momentum push. This is so for many markets in the region, especially the stock markets in China and India.

As I argued many times before, while I am optimistic about the stock markets in the next couple of months till end of this year, it is wise for us to lock in profits NOW. This is especially so for two simple reasons: 1) valuation is richer now as compared to few months back, 2) heightened volatility means higher risk for the same expected rate of return. Being in the “jinx’ month of October (reminder: Black Monday anniversary 19 October) will also add to market volatility (perceived or otherwise). For investors in China and India, it makes perfect sense to lock in profit at this level and go for a short break. One can always re-look at the market at the end of October (i.e. post Black Monday).

Crude oil is at a record high of about US$83 per barrel and strangely enough no one seems to be very worry about this. As I argued before on this impact, some ones need to pay for this higher cost. To put it bluntly, this is a process of wealth transfer. The wealth is being transferred from almost every consumer like you and me into the hands of the oil producers. If you have read the report on the power of the petrol dollars, you would notice that these oil producers have accumulated wealth at an incredible speed. No wonder they can build a massive city out of a desert. In fact, with that kind of wealth, they can build anything to their fancy. While there are lots of reports argued for a limited impact on world economy due to high crude oil prices, we should not ignore its impact. It is always difficult to predict the triggering point, i.e. what at level that it will trigger a crisis?  

The incredible thing to note is that the Baltic Exchange Dry Index continues to surge, it closed at 10,513 yesterday! It shot up another 6.6% in two days’ time. It seems that the party is still on, especially the energy related, shipping related, commodity related companies would continue to break record in the days to come, of course barring unforeseen circumstances!

Never allow your winning positions to turn into a losing one! You see, this is precisely why I am advocating investrade mentality (you can find out more about investrade and investrade strategy from my e-book or e-seminar: www.master-rider.com). This strategy would allow you to make money most of the time (if not all the time), and help you to achieve Win Big and Lose Small objective! Cheers!

Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom to be the “Master of Your Own Destiny”!

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Entry Filed under: Macro, Singapore