by, 20th-June-2009 at 01:08 PM (780 Views)
Is the glass half full or half empty? Or rather it's not the water in the glass that you are seeing but tears in your eyes that is clouding your vision?
It's quite amazing to read the very diverse opinions and conclusions being presented and argued repeatedly in this forum but it seems many are arguing over different thing. There seems to be a lack of perspective... or?
For example, it seems many are arguing on short term market movement basing on long term economic outcome. Or more specifically short term market movement basing on someone's opinion on the possibility of a certain long term outcome.
Risky thing to do? You bet.
Attached are 4 weekly charts: XJO, BHP, PPT and ARG. The rationale of selecting these 4 charts are: XJO reflects the overall market trend/movement, BHP reflects the market leader and the sector and the optimistic side of the market, PPT reflects the diverse investors in the market as it seems to have quite a diverse stock portfolio and lastly ARG, an LIC which has an investment portfolio more concentrated in the market leaders in ASX. It probably reflects the long term buy and hold investors much better than PPT.
So how well are each "class" of these investors are doing?
Without a doubt, BHP is the outright winner. Next comes the market leaders. The worst performer is the PPT class of investors - they are probably dragged down by the LPT/REIT, and many other non-leading stocks in the non-XMJ/XEJ/XFJ sectors.
But these charts only reflect the past. What about the future?
At this point looking at the future...
1) Question: do you believe BHP is capable of rising further? From the current 34.70, will it rise to 40? 50? Or even higher? And by when? What kind of time frame? And under what kind of scenario, in terms of growth and/or profit driver?
Do you have a firm commitment in your belief and do you have a strong economic/financial basis to back up your belief (talking long term here)?
What about the possibility of BHP correcting back down as a short term move? Factors such as profit taking, market sentiment do matter when you are talking short term. Will it make better sense that you wait for a better entry price?
Get your perspective right!
2) Do you believe the market will rise further? Why and why not?
Here's a perspective question: do you look at the stock price from the "top" or from the "bottom"?
Top = 6700 in 2007 and bottom is 2700 in 2003.
At the current 3900, if you look from the top, it looks cheap but from 2700 looking up, it looks not that cheap and with respect to its recent steep rise, it looks to be rising too fast.
And how relevant is the fundamentals? Economically speaking, the current global economic condition is closer to the economic condition back in 2002/2003 more than the booming economic condition back in 2006/2007 - does this make the bullish outlook argument worth a revisit?
(...since 2002/2003 "felt' like the end of the recession back then whilst the current economic feel is closer to the beginning of a very long recession.)
3) The Big Picture View - if you were to focus solely in BHP and are feeling extremely optimistic then you are not looking wider and further enough, because it you were to shift your focus to PPT, it is showing how pathetic it and the wider market had performed. At one stage it has plunged beyond the 2003 level! It has made a big round trip and has given back all its gain in its last 6 years stock market adventure. Will this dent your optimism? If not, how about considering this fact - its investors and quite a large number of them are not sharing your optimism?
Without their participation, what's the chance that BHP and your optimism will win the day?
Does this thought change your perspective of the market and your investment outlook?