Wednesday, September 16, 2009

A little story on Mr. Market

This is the era where many many people are now financially aware because of books like rich dad poor dad, because of Adam Khoo's types of books, because of so many new finance books popping up here and there...

And with the advance of internet technologies, coupled with online brokerages which charge lower commissions, more and more people are being lured to equities, properties.... Greed drives their buying, and all became victims of the Greater Fool's Theory.

So what happened? Equities rise and rise, and everyone becomes happier and happier. You sell to me, I buy from you, etc, and the price goes higher. But all these are gains without work! Gains without any productivity! Gains that do not contribute much to the increase in GDP!

Sooner or later, the dream will burst. I.e. Oct 2007. Many dreams were shattered. But there are still newbies like me who just got financially aware as well, jumping into the bandwagon. IT'S VERY CHEAP NOW, we would shout, and jump in to catch..... a falling knife...

Panic of all panics! The market goes lower. Bums like me hold on. Others, having read and decide to apply TA (halfway), sell off their holdings during March in expectations that they can buy back lower at a later price. Some included shorts to help earn back lost capital. Why not? They say. Trade the trend! It's a downtrend!

Yet, Mr. Market heard them. The market rose against all odds, again and again. Load more shorts! Short every peak! Market will come down again! Mr. Market knows it and move higher, grinning evilly at these newbies as they pay him more and more.

It's a new bull MARKET!!!!! Don't SHORT! BUY! BUY BUY! Buy high, sell higher! Everyone started putting their remaining cash to long. Mr. Market smiles encouragingly, and climbed higher as a enticement for them to buy even more and regret selling early. But... the economy has yet to return to full recovery. There are still many potential problems with the massive amount of printed money. Don't care! Trade the trend! It's an uptrend! STI WILL GO TO 3000 and beyond!

STI rose and rose. RECESSION IS OVER! BERNANKE SAYS SO! BUY NOW!!! STOCKS ARE STILL CHEAP!!! And the buying continues.

What will happen next? We have to watch over the next few months.

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