Signs of Bottoming out.

"Invest when fear is the greatest"-Warrant Buffet.

My favourite quote by my investment idol and mentor. Many experts and financial analysts have been trying to time out a bottom, even though its impossible to do so, don;t ask why its impossible to do so, its just the same as asking why did God allow Adam to eat the fruit if he is all knowing in the first place?

Likewise, if financial experts are not able to time to market, then who im i to do so? To make an important statement before i write out this article, is that im not trying to "time out" the bottoming of the market but to "look out for signs" of bottoming out.

Two important differences between the two notions, timing out the market is basically trying to use past data like for example using the percentage of decline from the great depression and trying to forecast/factor it into today's market trend , or using the average of the 1973 oil crisis add the decline in the asian financial crisis thus adding the percentage weight age calculation and forcasting it which gave raise to results like STI will hit bottom at 1600 or 1500, DOW will hit bottom at 7800 because... so on and so forth, its hectic, its very opinionated and sounds almost like bullshit. But looking out for signs of bottoming is much more easier,logical and maybe, just MAYBE more reliable then timing out the market.

So what are the signs to look out for bottoming of the market? In order to do that, i choose to look at two specific events

1) The previous peak bull year 2007

The signs in those years were

+Everyone was talking about investment,equities, shares ( remember China shares)

this includes, the hawker centre aunties,uncles,taxi drivers, the maids in orchard including prostitutes in geylang. I clearly remembered attending a TA (Technical analysis) conference Nov 2007, because i had passed my TA programme and was there to receive my certification. The room was packed with aunties and uncles, all of them including my lecturer were in united agreement that STI will hit 4000-4200 in the coming mths. Everyone was happy,optimistic and very very GREEDY.

-So if i were to reverse it, the sign to look out for is, everyone in previously mentioned , have stopped talking about investments, have shunned away from equities, have believed that once again stocks come from the devil. Everyone will be sad, pessimistic and very very FEARFUL.

+Experts like analysts/IMF forecasters/brokers during 2007 were issuing reports upon reports, screaming their lungs out about how good prospects are for the following year or years to come that stocks are the way to go, Soo many Strong Buy issues, analyst forecast and estimates were SO optimistic even for penny stocks, forecasting growth like 30-40%, likewise brokers were getting richer by the hour because trading activity ,buy sell buy sell buy sell was getting heavier and heavier each day, "STI trading volume reaches red zone of 4.7billion shares". Penny stocks then, like Alantac Tech: 50 cents per share, Jade tech at 43 cents and Baker Tech at 32 cents.

Blue chips like Cosco trading at $8.20, SGX at $15.10, Singtel at $4 plus and Keppel Corp at $16plus. Price to book value was like 4-5 times, PE ratio everywhere was exploding especially Raffles education 100 over times. IMF forecast next year's growth to be 3-4% because of raising China and India ,warns of inflation.

-Now reverse the points above and you get, signs like

IMF warns of Great Depression http://sg.news.yahoo.com/afp/20081223/tts-finance-economy-world-c1b2fc3.html

IMF chief warns 2009 may be 'even darker'

http://sg.news.yahoo.com/afp/20081221/tbs-finance-economy-imf-e65dddb.html

Analysts cutting their forecast and their consensus estimates, they gave even very good companies like ChinaMilk/Erza bleak outlooks, they suddenly become very silent about reports on ferrochina which they so passionately issue "Stong buy" reports

Penny stocks, just as their name suggest, become penny value like 1-2cents etc :Jade as of Dec 24th 2008 trading at 1cent, Baker Tech at 2cents and Alantac at 4cents.

Blue chips are getting no bluer, in fact they are deteriorating almost every day, SGX now at 5.10, Cosco at 0.91 ouch! Singtel at $2plus and Keppel corp at $4plus. STI trading volume shrink to a low of 400-500millions.

+Government 3mth T-bill yields during 2007 was a temping 2.1% to soak up excess liquidity

-Government 3mth T-bill yields now, at 0.41% below Fixed deposit rates, (ok i'm sry i made a mistake, sometimes FD is indeed better then T-bills lol) very rare for this to occur though.

2)With the above mentioned, i now look at another event the 1997 Asian financial crisis and try to match its similar effects to today's event

1997 crisis: Experts were claiming that this problem will drag on for years! I actually when to the library to check out the 1997 news, titles like "Asian in deep trouble!" "Bleak outlook for the next 10 years" "A repeat of Japan's 10 year depression, Asia could be next" "Recession could be deeper for 2008"

2008 crisis:News paper and view from experts recently have titles like "Great depression no. 2?" "Take your $ out from stocks now, unless you want to hold for 5 years" "Greater then the great depression?" "World growth to slow? Don;t be too optimistic" "Asian will feel deep impact from US meltdown"

1997 crisis: I heard many stories of bankers in Asia or people related in the financial world were taking their lives away, committing suicide, jumping down HDBs etc, people then were blaming the Asian governments/ banks for many things.

2008 crisis: "Investor who lost big to Madoff kills himself" http://news.yahoo.com/s/ap/20081224/ap_on_bi_ge/madoff_investor_suicide, soo far only one or two related new of suicide, more to come? Maybe... but there are reports that people are feeling depressed, losing their live savings etc, again alot of blaming especially cases that involve Lehman brothers/Mini bonds/MAS should take charge/ President Bush as the worse president in History etc etc

1997 crisis: I looked into the advertisement section of strait times and TCS (Tcs is now known as Channel 5) Gurus at full force, claiming that they accurately predict this and that, broadcasting results of their trading activity "I made $100,000!! In this bear market!!", claiming to make lots of money during this bear run, pessimistic forecasters suddenly become famous on business times section, saying thing like "i told you so" "As mentioned before STI will hit.." blah blah blah.

2008 crisis: Just look at Business Times now, or the Strait times business section, i don;t have to write anything more.

Now, looking at the signs above they are indeed quite similiar, however the very important question still lingers. Is it time to invest? This question can only be answered by yourself and your judgement, to me i think we have already bottomed or rather missed the bottom and that slow recover is at hand. However i might be wrong, we still have problems like the Big Three car makers despite the loans given to them, we still have falling US house prices etc etc, then there is question that this crisis is as big as the great drepession which lasted for only 3 years without government help. Now the crisis is about 2years or so. Come to the worse just another year or pain? Who knows.. my advise for this coming christmas, Start investing for pity's sake.