Start Buying Now, Seriously?

This is a recent interesting article that i would like to share with my readers. The author claims that it is now the right timing to re-enter equity markets.

Warren Buffett proclaimed that it is now time to buy American stocks, and he certainly led by example. Bear in mind given that Warren is the top 2 richest man on earth, his words are definitely not to be taken lightly.

However, there are also many doomsayers who claim that the worst is yet to come. At the same time, many so-called investment gurus were criticising Warren. They said he was irrelevant to the new economy in 1999, when he refused to buy technology shares. They say he didn’t understand the situation when he said that financial derivatives were “financial weapons of mass destruction” back in 2002. And now they say that he is simply trying to talk up his own investments, when he said recently to “Buy America”. These things they say of the world’s most successful investor. Nobody remembers these “they”, but Warren Buffet continues to make loads of money from his investments.

The reasons in favour of things will get worse include:
1) This time is different, because this is an unprecedented global economic slowdown!
For this reason, the author argued that of course it's always different. After all, if it wasn’t different, no one would panic, and no one would sell their shares, and stock markets wouldn’t fall. However, he also argued that human race has always been able to find solutions to these problems and emerge stronger. This is one of the reasons world stock markets grow over the long term!

Point taken!

2) There's no clear sign that the recovery is in sight!
For this reason, the author argued that if we had clear signs, the stock markets would have gone up a lot, and you would have missed the opportunity to make profits. Stock markets always anticipate economic recoveries. By the time the analysts are able to report clear signs, we would be more than halfway to the top. The author also claim that some of the "clear signs" could well be the fiscal and monetary policy actions undertaken recently by various governments of different countries.

Valid point again!

3) The recession will last for another 3 quarters!
For this reason, the author argues that assuming this is true, three quarters means the last quarter of 08 and the first two quarters of 09. Let’s budget another quarter and say it goes on till the end of 3Q 09. Stock markets always recover before the economy does. So if stock investors all thought that the global economy would recover by end of 3Q 09, we ain't that far away....

Lastly, the author points to the "I wish I had bought" syndrome. Many investors surely have experienced this before and regretted not buying when the market was heavily trashed! The author's reasons for optimism include Malaysia's current low market Price Earnings (PE) valuation, supported with growing population and successful regionalization of many local businesses, which means many businesses are less dependent on one country's economy alone.

Nevertheless, the author further advised that make sure one invests with money one can set aside for at least three years, so that one will not be caught short having to sell at the wrong time, as market needs time to realise its potential!

Here you are. Do you agree now is the time to re-enter equity investment?

The above article was written by Moh Hon Meng, the co-founder and executive director of iFAST Corporation.

For the full article, click here.