Stock Talk

Suggestions on solving the financial tsunami was
1: US Government to print huge sums of currency notes;

2: to ask banks increase lending. 4 days later on 19 March, US Federal Reserve started printing currency notes.

Looks like the situation should improve, but not to be over optimistic.

Current financial tsuinami is much more severe than Asian financial crisis. We need the above mentioned two actions to solve the problem. Federal Reserve has started to print currency notes, but banks have yet to increase lending. Besides, the price of gold indicates that Fed’s currency note printing in various states is not sufficient. If Fed has printed enough notes, the gold price would not have come down after rising on 19 March.

Nevertheless, Federal Reserve is on the right path; may be you can increase the stock to cash ratio, and prepare for inflation due to further note printing by US Government in future. You need to have a long term investment in mind; minimum 2 years holding.

Although every long term investor hopes to buy shares at the lowest price level, but is not possible to do so. Long term investors do not worry if the price of shares they bought would drop. They only think how much they would make from next bull market. Past 20 years tell us a short market cycle is 3 years, and a long cycle 7 years. The last bull market peaked at STI 3906 points in October 2007, and dropped to 1455 points in March this year. STI is now at 1745 (27 March). Assuming the market situation remains depressed, and takes 7 years to reach another crazy bull market, it will be 7 yearsfrom October 2007, 5.1/2 years from now. If 5.1/2 years from now, that is: October 2014, STI touches 3906 points, your return on stock investment will be more than doubled, averaging 10% a month, which is definitely better than if you had put your money in a bank.

Which are the stocks worth long term holding?

You must select stocks that will not collapse, SGX which operates as a monopoly is most unlikely to collapse. Next is ST Engineering which trades weaponry. The 3 local banks, SIA, SPH also enjoy monopoly business operations.

Long term investment strategy is not easy to adhere to. When the share price keeps dropping after buying, what are you going to do? Every investment broker will tell you: cut losses. If stocks are sold and losses cut, there is no point talking about long term investment.

Long term investors must have a strong mindset not to cut losses.

You may ask: what about those who bought Charter Semiconductor as long term investors and now having headache after having lost nearly all they had?

Second issue is your timing in entering the market. Never enter the market at the late stage of a bull market, or early stage of a bear market. You must patiently wait until STI has dropped more than half from its peak.