Greed and Fear at play

Stock markets have kept rising every month since March without any significant downward adjustment. At first, the market opinions were still debating whether it was the arrival of the bull market or rebound of the bear market. Of late however, some sceptics who took a negative view have changed their view and become positive, although there are some who do not wish to be seen to have openly changed their view have also soften their tone. Thus, what we hear in the market is the bull has arrived.

The question is: There should be adjustments in a bull market, afterall people like to enter the market during adjustment and buy stocks for less, rather than to chase stocks at high price level only to encounter major or minor market adjustments.

True, there were monthly adjustments for the past months. But how much an adjustment is enough? When a 10% adjustment happens, people hope it was15%, but by then the market would become panicky, and people would expect market to adjust by 20% to 30% or even more.

My impression from what I have gathered from small investors for the past 20 over years is: only few would enter the market at the initial stage of an adjustment; most would not dare to enter the market, thinking the adjustment would go further. In a bull market, rises are often
rapid and declines slow, and in no time a certain turnaround stock prices already back to the
level before adjustment, or even higher. As a result, small investors miss the opportunities to
enter market. Even now, many people I know are without any stock on hand, or still hold on
to stocks bought in 2007 peak.

There are other small investors who might have entered the market at various stages, but still hopeful of a bigger adjustment to come. They only invest a small part of their investible fund, most of it is still on hold. These investors in fact have missed out the many adjustments of the past months. They only invest a small part of their capital because they chased and bought stocks at high prices after adjustments, and hence lack the confidence to invest more.

Stock prices rise step by step in a bull market; small investors cautiously invest their capital sparingly intitally only to invest more at the later stage. When the bull market ends and stock prices fall, small investors then find out that their average cost of their holdings is not low as they had invested to little at the beginging of the bull market. If you believe now is the bull market, why not go for it. If your available fund is for business operations, do not use it for buying stocks. If however your availabe fund is sitting in a bank earning a meagre interest income, then you may consider investing more daringly if you are young. Even if you are unfortunate enough to enter the market at a wrong time in a bull market that adjust 20% or 30%, you need not be too worry as long as it is still a bull market, prices will hit new high after adjustments.

The difference between investing in stock market and horse betting is: if you bet on a wrong horse, your money is gone; if you buy stocks at a wrong time, you still can hold them until the prices of the stocks recover