Search this Blog & the WWW

Pages

Monday, May 31, 2010

Stocks down = increase in saddness and depression?!?

The stock market has tanked due to many negative external factors. But does it mean we should all be sad and depressed? Instead, we should be happy. The reason is that the real economy is still booming.

Myth: The stock market is the barometer of the economy.

Fact: The real economy is the basis where all business flourish.

The stock market is a derived market. A derived market is a market that is created out of an underlying real asset. In this case, it is the companies listed on the stock exchange. Although there is some bearing on the performance of the stock market to the underlying performance of the listed companies, because the major players in the stock market are no longer interested in taking a market risk view of the individual stocks, there is now a disconnect.

The huge hedge funds invest purely to play the arbitrage opportunity between interest rates and forex. As the funds that they manage is in the billions, investing based on individual stock assessment becomes too tedious and time consuming. In reality the investments made follow the index weightings of the component stock exchange.

So why should problems in the Koreas affects say, Petronas Dagangan or TNB? It does not and therefore the share price should not have fallen to the level that they did.

Therefore, enjoy life, work hard and everything should fall into place!

1 comment:

ohmywtf said...

avoiding share market at all cost coz got burnt before :-)

LinkWithin

Related Posts with Thumbnails