- Who is the Winner?

Who is the Winner?

Written by Wilfred Ling

Tuesday, 03 March 2009

We are indeed at heart of the bear market. In the bear market, it is characterized as follows:

Fear
Despair
Those who has lost money says “I’ll never invest again”
“Buy-and-hold” and asset allocators looks like fool
And the newspaper will keep on saying “The market has never look like this before.”

Actually, the above 1 to 5, is repeated everytime there is a bear market. Bear market is the usual characteristic of the market cycle and it is necessary for the next bull run. In year 1997 (Asia financial crisis) and 2001 technology bubble, it was something similar too. This time round, it seems that no one has seen such collapse of the market before because we are seeing the financial sector bubble bursting. Due to high leverage, the market is deleveraging. But then again, in year 2001, technology bubble was also the first to be seen. In year 1997, the “Tom-yam” bubble was also the first to be seen in Asia starting from Thailand.

When the bull market comes, it will be characterizes as follows:

Greed and leverage (borrow money to invest)
Over confidence
Those who has earned money says “I’ll become a full time in investment”
“Buy-and-hold” and asset allocators looks like fool (again)
And the newspaper will keep on saying “The next “China”, or next “India”, or the next “<whatever predicted by fortune tellers call fund managers”

For both situation, most people will lose money. Those who are full of fear during the bear market will sell in panic and fear investing. Those who are greedy during the bull market, will get burn when market turns because they would leverage too much.

The only common among the two market conditions is this: The buy-and-hold and asset allocator will do better than the rest. Not because “buy-and-hold” and asset allocator gives superior return but because the rest earns terrible return.

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