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Monday, May 07, 2018

Mr. Market is Really Depressed

"This imaginary person out there - Mr. Market - he's kind of a drunken psycho. Some days, he gets very enthused, some days he gets very depressed. And when he gets really enthused, you sell to him and if he gets depressed, you buy from him. There's no moral taint attached to that." 

Warren Buffet

Over the past few weeks, our market has been dropping due to uncertainty in the political arena. That's the dominant force in the market now- replacing the previously cautiously optimistic market outlook driven by improving economic numbers, better crude oil prices and strengthening of MYR.

Since the date for the GE14 has been announced, the institutional investors have turned cautious on the market outlook due to concern of an opposition victory. These worldly wise fund managers, whose tenure and income depend on their ability to move with the crowd, have turned decidedly depressed and began to sell in the market.

Mr. Buffet has rightly pointed out that when Mr. Market sells at depressed & attractive prices, you should buy from him. That's no easy feat. Our fear of making a loss in the market tends to drive us into doing the exact opposite; that's by joining in the selling stampede.

There are three questions that you need to consider:
Firstly, what if Pakatan wins?! You will have a government that's very similar to previous BN government when Dr. M was the premier. Sure, it will be a less cohesive alliance but the incoming governing coalition will probably sort itself out after a few weeks. These are no greenhorns. The core leaders have been governing the two most populous & wealthiest states in the country- Selangor & Penang.

Secondly, how much lower would share prices drop?! Let's face it, the share prices have been dropping because of precisely the above scenario. If the share prices have captured 100% of this fear - and don't be surprised if it has over-priced this fear - then it is likely that share prices may not drop on May 14 (the next Monday).

Thirdly, what if BN wins?! I can leave that to your imagination what the market will do.

Let's conclude. While a Pakatan victory is possible, I still believe a BN victory is more likely due to gerrymandering, Sabah & Sarawak safety net and the disruptive role played by PAS. In the less likely event of a Pakatan victory, the share price may drop a bit more since the bulk of the decline would have taken place by now. On the other hand, if BN wins again, it will be Boomtown Charlie for those brave & stubborn souls who stick to their shares.

This is just my opinion. It is easier for me to pen this opinion since the share prices have dropped so very much. If you are one of the unlucky ones who hasn't sold enough, think again. If you are on the opposite side of the fence, will your task be easier?! In the market, you have to be as rational as possible, weighing the probability of an event occurring and the risk and reward that flowed from that outcome.

Good luck and happy voting!!


Chart 1: FBMKLCI's daily chart as at May 7, 2018_11.00am (Source: Shareinvestor.com)


Chart 2: FBM70's daily chart as at May 7, 2018_11.00am (Source: Shareinvestor.com)

From the charts above, I believe FBMKLCI & FBM70 should be well-supported going into the penultimate day of the GE14 campaign.




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