Horizon.my

I’m just reading with interest the prediction of this Charles Nenner guru whose other predictions have apparently been proven right in recent times. It seems judging from the comments in the article the views of US investing community is divided somewhat equally on this prediction. Nenner thinks the market will peak in August and move towards a free fall thereafter.

Whether or not we are in a bear market rally remains to be seen. I must admit I’ve been rather passive throughout the rally, and I’ve held on mostly to my positions with the exception of CIMB which I feel is getting overdone. The CIMB story has run ahead of the earnings and at 4.5x Net Tangible Assets, so has the share price I feel.

If the market does take a dive, the stocks that get hit the hardest will be the large caps on high multiples – CIMB, SIME etc. Be that as it may, I could be wrong. But why take the chance when there are other better buys in the market?

I did do quite a bit of thinking in the past months and I believe Jim Rogers is right when he says:

“Anytime you think you’ve become a financial genius – when, in fact, you simply have had the good luck to turn a profit – it is time to sit back and do nothing for a while. If you stumble upon success in a bull market and decide that you are gifted, stop right there. Investing at that point is dangerous, because you are starting to think like everybody else. Wait until the mob psychology that is influencing you subsides.”
Jim Rogers, A Gift to My Children, P74-75

It made good sense to me, and I re-adjusted my portfolio a little to position better for dividends, bought a few shares in higher dividend and financially strong companies such as Plenitude, NCB, Manulife and Petronas Dagangan.

Who knows whether Charles Nenner will be right this time? But what if he is? Anything is possible! And we as investors need to allow for that possibility.

It is at this point that we would do well to remember Benjamin Graham’s margin-of-safety principle, which is that favourable difference between price on the one hand and appraised value on the other. The margin-of-safety will help us to absorb “the effect of miscalculation or worst that average luck”.

That said, are you ready if we are looking at a 40-50% market decline? If this turns out, a 20-30% decline in your portfolio may not be such a bad thing as it could present the “Intelligent Investor” with another opportunity to make more money. Of market fluctuations, Benjamin Graham has this to say:

“In any case the investor may as well resign himself in advance to the probability rather than the mere possibility that most of his holdings will advance, say, 50% or more from their low point and decline the equivalent one-third ore more from their high point at various periods in the next five years. A serious investor is not likely to believe that the day-to-day or even month-to-month fluctuations of the stock market make him richer or poorer.”

Sound advice indeed. So does it matter if Charles Nenner is right or wrong?