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You only really make money after you sell
One of the questions I always get asked as a stock market reporter (and I'm pretty sure others who cover equities like I do have had the same experience) is "what's good to buy?''. This question has a few variations, two of the more popular being "I need to make some money quickly, so what shall I buy?'' and "is it time to buy?''. These questions have increased in frequency over the past month because of the steep plunges that stocks have suffered but my reply has been always the same - if it was that easy for me, I would have made enough money and retired a long time ago. (As an aside, I have two stockbroker friends who actually have retired early, in their mid-40s).
That response may appear simplistic and perhaps evasive but an even more simplistic answer is, in my opinion, more profound - you never make money when you buy, only when you sell.
It is a fact of life that buying something requires a cash outlay, or payment of some kind of consideration to procure that something. No money is ever made doing this and it is only when the purchased item is actually sold or liquidated, presumably at a higher price than when bought, that money is actually made.
Note for example, the frequency with which structured warrants appear on SGX's buying-in lists, these being for naked short sales undertaken a few days earlier. Notwithstanding the huge risks involved when caught naked, traders still indulge - for the simple reason that they rather collect money upfront than pay for a purchase. Not that I would advocate shorting calls in a bearish market, mind you; after all, if you get the direction wrong, the theoretical loss is unlimited. Much better to buy a put, But the point is still valid - selling means receiving cash which many prefer.
I also believe that because the stock market operates on the principle of the "greater fool'' that everyone is fundamentally - and secretly - bearish at heart. You'd have to be, when participating in a game built on hope more than anything and driven by greed and fear. So is it time to buy now?
My thinking is that the crash in oil has nothing to do with the turmoil being currently witnessed. No one has been able to supply a convincing argument as to why lower oil should be as destabilising as it is now - on the contrary, logic dictates that cheaper oil has to be good for everyone (except maybe oil producers). All I've heard are vague references to deflation or disinflation but to my mind, these lack intellectual rigour. I believe the seeds of the current collapse were sown by an over-reliance on monetary policy to constantly bail out markets in times of trouble. This started the US Fed in 2008 when it rescued its rotten, "too big to fail'' banks and the same approach was then copied by Fed contemporaries who were faced with the same problem.
By taking risk off the table, the major central banks over the past 6-7 years bred massive complacency in markets everywhere. What we are now seeing is a reintroduction of risk into the investment equation after a 7-year absence. I don't think the adjustment is so easily dealt with, I think it'll take many more months.
Time to buy? Good heavens, I'd say it's very much a time to sell!