Investing Paradox

It is paradoxical! Just when the market is right for buying in, most investors are scared out of their wits and are selling indiscriminately. And it is usually the better stocks that are being sold because nobody wants to buy the "rubbish" anyway. Thus, just when the market may have bottomed, you will find investors selling all their solid stocks (because there is still some value left) and holding onto the rubbish.

The question really is, "Have we bottomed?". From the peak of 32,000 to the low last Monday, the market had fallen over 60%. It has recovered somewhat in the last few days but there are no shortage of people telling us that there is a long way to go before the we can see light at the end of the tunnel.

I do not disagree with them, especially if we are talking about the US or Europe. In China, the government still has sufficient surpluses to stimulate the economy without going into debt, and have been making moves recently to encourage more investments and lending by the banks.

On the short 3.5 year cycle, the last peak was in October 2007. Usually, we look for the market to fall for 1.5 years before finally turning around. Then we will have a 2 year run up to the next peak. So far, we are 1 year into the 1.5 year downturn. During the next 6 months, there will be opportunities to buy into the market.

Do we buy now? It depends on the stock. Now is the time to stock pick. Look fro stocks which have a great franchise but are sold down because of market sentiments. A good example is #2319 Mengniu Dairy (accounts which I manage own some). It was sold down because of the milk scare in China. I can remember the Tylenol tampering in the US. Eventually, they introduced tamper proof packs and consumers went back to buying them.

I also like #941 China Mobile. People are not going to stop using their mobile phones.

Happy hunting!