A Brilliant Question Raised by a Reader

Last week, I've received a question(privately) from a reader which I feel I should share it here so that all of us benefited from it. It was a brilliant question!

Dear reader, don't worry, I will not disclose any name here. Please feel free to ask (private or public).

Here is the original message

Vincent, how u view the recent economy, do you think glob crisis still persist this yr or start to grow aldy? a lot of uncertainty and i think will definitely hit spore as spore also one of the largest stakeholder on europe and us bond.

The question basically ask about how is the market now, amid of US housing crisis and European debt crisis. Having a clear vision of what is happening is vital to investment no matter how good you are at stock picking/analysis. Stock analysis and stock picking are all dependent on the market condition. In different market condition, we are going to pick different stock. So, without a clear vision of where you are, your investment is based on luck.

Flow:
1) Vision of current market condition.
2) Stock type to pick. Including the consideration of industry. Stock type means whether they are cyclical/steady_growth/fast_growing/penny_stock/non_growth. I classified them based on these 5 categories.
3) Stock analysis (company evaluation) on the company type you have already chosen.
4) Entry and Exit point.

(I feel I can write a book if I were to cover everything, so, ask me should you have any question and I will discuss bit by bit)

Ok, enough emphasis on the importance of VISION, let's look at the current market condition.
Let me start with the impact caused by recent major event (US housing crisis and EU debt crisis).
Referring to the STI graph I retrieved from shareinvestor.com below, US housing crisis has caused STI to plunge from July 2007 to Jan 2009. (why I quote the time instead of price? ask me, if you are interested) On the second part, you can observed that despite of the long-discussed EU debt crisis, the market is basically sideways! until recently a series of rating downgrade and the potential default of Greece/Portugal/Italy/etc. The latest news that caused the rally is due to excellent US fundamental data.
(The unemployment rate in the United States fell to 8.3 percent in January of 2012, the lowest since February 2009 - retrieved from <http://www.tradingeconomics.com/united-states/unemployment-rate>)

So, after all the stories, where are we now? If I say we are good now because US is producing positive market sentiment, companies profit achieve record hight, does that make you feel more comfortable? But looking at the possibility of Greece/EU country potential default, what would you think?

Economic is basically optimistic except it involved a risk in European debt.
If we are in uncertainty, let's look at more data.

Figure above shows 2 major events - Asia crisis 1998 and US crisis 2008 (start off at July 2007). What you can tell from there? Few things we can conclude here.
1) Every disastrous event provide great buying opportunity.
2) Over the long run, price is going upward.

So, back to the question again, where are we now? From the chart above, it seems that we are almost at record hight. Is that possible to go higher and higher? If you ask me, I will certainly say yes, economy will do better and better in Asia, especially now. Economic is switching from the West to the East since year 2000. Chart below shows USD is depreciating against SGD This suggests that money is flowing from the West to the Asia country. Or, at least, from US to Singapore. As DBS director concluded in an investment seminar "now is just the beginning of economic growth in Asia." But that is a long term VISION, talking about 30-40 years time frame. It is not a surprise to see some noises in the short term. EU default may be the case, which is a good news to me, because it provides great entry opportunity. I can assure you that if EU were to default, the impact is less significant compared to US housing crisis. In other words, we will not see a similar dip as in Jan 2009.

To conclude, current market is doing good, and it is in the middle of the next boom. Economists estimated that by the year 2013, many companies will record high earning profit, more and more good news will be published by the press. This is very likely to happen, but in the contrary, when that happen, we need to be cautious and be ready to sell. I can foresee that I will dump some portions of my stock by the year 2014. Blogging is cool! We can check back this post by the year 2014.
Let's see U_U