Issue No.


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The Volatility Of The Stockmarket

This article is reproduced with permission from
Normandy Advisory Services Sdn. Bhd (Licensed Investment Advisor)
15th Floor Menara Multi-Purpose, No 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur
Tel : 03 - 469 5560 Fax : 03 - 294 5561

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The recent "freefall" of the KLSE was cause for concern among the local investors. While many of the experienced investors were affected by the sharp downtrend, the new investors who have not yet familiarized with the world of the stockmarkets experienced even greater trauma.

As we are well aware, investing in the equity market carries a higher level of risk. Although the downfall has been to certain extent exaggerated, market volatility is part and parcel of any investment be it bonds, currencies or equities.

In the domestic environment, bonds are viewed by the investors as a very dull type of investment but in the U.S., bond prices may swing as aggressively as the equities. On the other hand, currencies are viewed as a highly volatile market but could be where opportunities are available.

If the turbulence in the financial markets keeps you out of any of the investments, you may be missing some opportunities. Equity investment, although carries a higher degree of risk, is a very popular form of investment among the local investors despite the relatively "conservative" Malaysian financial market.

In any type of investment, if you are looking at long-term, this should be a good time to invest regardless of the degree of market volatility. Even when the prices were high, you could still maximize your profit with a regular program of investing and efficient risk management. Thus, when the prices are low, more bargains can be found.

Market volatility is normally higher over a short-time period, but the effects of volatility tend to diminish over time. That explains why the performance of any unit trust funds that you may invest tend to fluctuate over the short time but the trend is smoothed over a longer time frame.

In an environment where many local investors seek short-term gains, one should learn to look beyond overnight fortunes.

Today's changing market may concern you but Normandy Research sees it as an opportunity for tomorrow's profits. You should not expect to get rich instantly but you should plan to grow your money slowly. Chances are you will not become a millionaire overnight if you are an ordinary investor with minimal capital.

The huge plunge of the speculative second board simply killed a lot of investors and suggests that anything that goes up sharply will plummet just as easily. If you are speculating heavily in the local stockmarket then you should be well-prepared for such an outcome. Who can read the future?

Investing in the equity market requires discipline and planning. But in most cases, an investor would jump into the market based on tip(s) given by lets say, a close friend. There is a very small group of people who actually do their homework before investing into the market. As mentioned, investing directly in the stockmarket requires your willingness to take risks.

Rather than avoiding the market simply because of the volatility involved, you should learn how to cope with the ups and downs. Below are some of the very basic guidelines of what a layman should do when the market turns unexpectedly (short-term volatility).