With retail investors turning net buyer with higher volume turnover, it pushes up the performance of small cap stocks. Since early February, the small cap stock index has substantially outperformed, rising by 7.3% against 2.6% for the FBM KLCI.
What does this mean?
Widening risk bandwidth, underperformance of premium assets, higher interest rates and inflation, generally leads to higher risk appetite to catch up on returns. I think this is exactly what is happening. Small, unknown and illiquid stocks are pushed. The warnings signs are everywhere. Please be careful.
It reminds me of a story told by an elderly friend. When people go to the stock brokerages after they have finished their shopping at the wet markets, it may be time for the smart investors to go home and take a rest.
Thank you sir for your comment. With all due respect, I think the small-caps in Bursa Malaysia are not near to alarming level yet. Many are still undervalued, others fairly valued. The recent push on small-caps should be from the smart small-cap investors, not the wet-market shoppers. Having said that, I agree that the time for bargains shopping has passed, but there are still some upside for value investors (who bought the small-caps before anyone notice) to bear fruit.ReplyDelete
Since this current uptrend is its fifth year, investors have the choice to continue to make hay while the sun still shines - or otherwise. they may choose to be patient & wait for the dawn of the next bull cycle instead. As for me, i would most probably continue to be fully invested in stocks for the rest of this year.ReplyDelete
2013 was an awesome year for Bursa, inspire by the market’s strength, many retail investors want to get in on the gains. Is it an ideal time to go in, I think it is a horrible time to do so unless the targeted stock provide safety of principal and an adequate return. Anything less than your expected return is pure speculation, hoping there is a bigger fool out there.ReplyDelete
For simplicity, if you are aiming for a 10% return and the stock at current price can only managed an earning yield of 6%. Any dividend payment in excess of earning will have to come from past reserve provided it has the cash to do so and this is not sustainable in the long run. Its price will not rise unless its future earning has the potential to grow substantially.
Without sustainable earning growth, safety of your investment capital will be in jeopardy and there is a high probability that the share price will adjust downward. Invest intelligently….
We shall see who's right, you or me - or even both of us could even be... !
a lot of small cap stock still trading at a steep discount to their NTA and pay a small dividend for holding the stock,have to patiently wait sometime 1 or 2 years to get a 30 to 40 % gain,I make some money on Super Ent and Hevea both are penny stock last yearReplyDelete
If you check the small cap funds performance, most of them have registered 20% gain last year. My wife told me that her neighbour friend who is also a full time housewife finding excitement in punting the warrants to make a few hundreds.ReplyDelete
The number of retailers finding inroad into the stock market are rising by the day, most of them are traders based on market momentum without considering the fundamental. They are happily playing the musical chair game and waiting for the bigger fool to come in to make quick money. When the music stop, the last one standing will get roasted.
Stay invested in stocks that can manage their capex, controlling costs & borrowings to generate sustainable earning growth and deliver a stable dividend payment.
When even the fish seller talk about the share market , maybe it's time for profit takingReplyDelete
Wait till they start buying & become bull experts before...Delete