Like the average Joe, we all have the same dream of making it rich one day. Some choose to bet on TOTO and 4D, while some choose to dabble in the stock market.
In our opinion, the latter group of people is more rational and logical, since the odds of making a positive return in stock market is exponential higher. In addition, the odds increases with the amount of effort we put in,
However, while we always advocate investors to maintain a long term horizon in their investment decisions, there is bound to be a handful of retail investors that wants to make a quick buck.
The problem here lies in today’s macro events dominating the headlines: Trade war, recession risk, interest rates, the destabilizing situation Hong Kong etc. These events make the market conditions extremely difficult to trade. This leads us to the topic of the importance of tempering expectations.
Recall when the Federal Reserve signalled a dovish turn in their monetary policy, the media fuelled stories that the Fed was looking at a cut of more than 50 basis points. US investors sang bullish overtures to drive major US indices to record territories but as it turned out, the Fed only slashed interest rates by 25 basis points (bp) in end-July to the disappointment of the market.
Now, hindsight vision is always 20/20. So, think back when the Fed first began to hike interest rates. Every interest rate hike was only by a quantum of 25 bp, so why should investors expect the Fed to cut interest rates by a larger quantum?
Then how about that time when Trump signalled his intention that there will only be a trade deal with China after he meets his counterpart Xi Jinping? When the two leaders met at the G20 Summit in end-June and agreed to restart negotiations, the media once again pushed stories about trade deal hopes that drove global stock prices even higher.
Barely two months later, Trump returned to his tariff tactics by imposing 10-percent tariffs on the remainder of US$300 billion worth of Chinese imports. Stocks dove heavily on news, blaming Trump’s unexpected salvo.
However, was it really unanticipated? After countless times why would investors still trust Trump’s flippant nature?
Now if Trump is call on Xi for a third face-to-face, maybe the third time’s the charm? Probably not. Remember the boy who cried wolf.