Safety Net in the Market?

Once upon a time, in the Land of Unknown, there was a hut. Inside the hut, it was total darkness except for some dim light shining upon a wooden beam which was placed in the middle of the hut from one end to the other. The beam was wide enough with the help of the dim light shinning upon it for someone to see the beam and walked on the beam towards the other end.

One day, Mr. Not Knowing called me for a challenge. He said: "Paid me a fee, and if you could cross the beam to the other end and you would be rewarded". The reward could be handsome depending on how fast I could cross it, but once I stepped on it; there was no refund and no turning back.

I took the challenge from Mr. Not Knowing. Paid him a fee. I had little difficulty to see the beam under the dim light shinning on the beam and quickly walked across the beam to the end other of the room and collected my rewards afterwards. The reward was pretty good for such a quick walk.

Mr Not Knowing asked: "Do you want to play again?". Surely, for such an easy gain, I would be silly not to play. I paid him more fees, and set my feet on the beam again. But, after walking a few steps, suddenly, the hut was brightly lit for a while and went off. To my horrible, I suddenly saw under the beam there were plenty of crocodiles with mouth open wide showing off their razor-sharp teeth and staring at me. Darkness filled the room once again leaving behind the same dim light shinning upon the beam.

I was terribly frighten, but I couldn't turn back. I nervously and slowly walked across the beam. But, I was so scare of falling into the mouth of crocodiles, that I went crawling on the beam instead of walking. Half-way through the beam, I totally lost the courage of crawling, and I sat frozen on the beam. I prayed to the Lord for help.

Suddenly, the light came back, and I saw a safety net cross the the room separating the crocodiles below from the beam. If I slipped, I would fall into the safety net but not into the mouth of crocodiles. The light went off again.

I quickly took the courage, got up but, I walked very slowly and carefully towards the end of the beam as I was still very worry whether the safety net was secured and strong enough to hold me back if fell into it.


So is there safety net in the Market? Were you be brave enough to get up and walk across the beam?

1) STI Greater Bear - Asian Financial Crisis. The Market was dumping the SG companies like there was no tomorrow. STI from the high of 2,504 on 6 Feb 1996 to the low of 800 on 4 Sep 1998 in 941 days, down -68% from its high.

This bear, will it be STI Greatest Bear or one of the Greater Bears?

STI from the high of 3,876 on 11 Oct 2007 to the recent low of 1,457 on 9 Mar 2009 in 515 days, down -63% from its high.

You could see the magnitude of fall in a shorter time. So scary!

However, it has somewhat recover more than 20% of its recent low. So has STI bottom out or more to go?

2) Spare money. Do you have spare money that is NOT needed for at least 3.9 years?

From the high of 2,504 on 6 Feb 1996 to the next higher of 2,583 on 3 Jan 2000, it took 3.9 years.

3) Dividend Yield. What is your opportunity cost of not staying with stocks? Are you putting into FD for less than 1%? The trade off is probably you would be sleeping well at night for next 1-2 years. That is your opportunity cost for sleeping well. The dividend yield of more than 2% is still possible for some strong companies under current market if you could live with some nightmares without the need of visiting IMH.

4) GLC companies. We know that the Govt is the greatest nanny in SG market. GLC companies are very unlikely to go bankrupt. Mgmt and board could be replaced to get the company back on feet again.

Do you believe the strength of the safety net of the Market? Or you still fear the crocodiles with mouth open wide with their razor-sharp teeth staring at you if you ever take a step forward onto the beam?