thoughts., page-7

I think people have to be careful of using near term data bias when making their investment (note: not trading) decisions.

A few things to consider: The ASX is still nearly 40% off its highs, yet we havent actually experienced a recession yet. The market has been down based on fear of the future.
Company profits have been impacted by this fear (through expenditure) and from accounting gimics (write down of intangibles, mark to market etc, nothing to do with underlying cash flow). Now if it turns out we have over estimated this fear, future expenditure will resume, and equities valuations will revert to someform of normal valuation rather than doomsday valuations. This will all get reflected eventually in the stock market.

Second have a quick look at the ASX graph over the last year. That big fall in Oct-Nov 08 occurred during the implosion of lehman bros. At that point the financial system was at a real risk of melting. This risk has now been reduced, so again we dont have that fear to worry about now. If you look back to Sept 08 out market was trading at around 5000. So its logical that we should be trading somewhere around there given similar conditions. WHen will it reach 5000: i dont know, the market will figure itself out when its ready.

Third: i realise this market has had a fantastic run up over the last month or so and should have a correction.
But i face a dilema? I look through my portfolio of stocks looking where to take some profits, and i review them on a fundamental basis. The problem is THEY STILL LOOK CHEAP. If the stock market didnt exist, and all i had was the business historical figures with historical valuations, such as PE, Price to book value etc, why would i be selling the businesses at current prices. If i wouldnt be selling the businesses then why would i be selling the shares???????

Forth: i look at directors transactions: there is no significant director selling in recent months, even with the uplift in the market (notice the difference between this and the US, where apparently there has been significant inside selling in the last few months).

Fith: impact of short sellers. Just as the downwards move in the market from 08-mar09 was exacerbated by shortsellers, so to could the exit of short sellers upwardly impact the market. There must be eventual equilibrium.

Over the last couple of months ive really taken the foot off the peddle in regards to purchasing new positions, or if i have made purchases they are in sectors that are now lagging, essentially the defensives.

But why would i sell positions that before were crazy cheap and now are just cheap, just because the market has had a run and could be facing a correction.


Now if you transpose my thinking as a longer term investor into the wider market place psyschology, its a possible explanation as to why this market is trending upwards quite fast. Existing investors dont really want to sell, and new players who have been on the sidelines for months are starting to want in.