Skip to main content

How Serious Is Sub-Prime Home Loan Issue?

As a long term investor, you do not need to flee the market unless you are near to the retirement age (meaning, you are no longer "long term" in your investment). For many long term investor, they would say that the fundamental is unchanged. So, their stock valuation should not change.

However, we must not be complacent about it. Fundamental do change when the market condition changes. That is the fact. How your stock will be affected depends on a few factors. The number one factor is whether the stock that you purchase is directly involved in the sub-prime loans. If they are, then the fundamentals of that company is changed immediately. The profit will be affected directly. So, if you are holding banking stocks, you may suffer loses. That amount will depend on what level of involvement your banking stock participates.

However, if you are holding stocks of MacDonalds or Coca-cola, the impact to your stock will be minimal. You may see immediate price down but the prices will come back very soon. As a long term investor, you would probably divest your investment into different industrial sectors. It would be highly probably that 10-15% of your portfolio is affected immediately.

The sub-prime issue does not impact the US financial sector alone. Most of the risks has been packaged as Collateral Debt Obligations (CDO) and sold to foreign financial institutions in Europe and other parts of the world. The risks has been distributed to other countries. It will impact the whole world's financial sector. The overall effect still not quite know and this is causing fear among the investors.

The fact that ECB and FED are injecting funds into the banking sector elevates the fears of the investors...


More about investing can be found in Investing and Portfolio Management.
Read All About Investing For Beginners.
Labels:

Comments

Post a Comment

Popular posts from this blog

More about Market Timing

There has been talks about end year rally during the earlier parts of this year. Particularly in February to March period when the market was suffering from 'temporary' set back. During that time, even though the European Debt crisis were looming, the Asian economy was still booming. However, as the time passes, the European Debt crisis becomes more apparent. Countries were finding it more and more difficult to cover up. More facts emerge and picture became clearer. The earlier investor pull back and market began the down trend again. In such time, we will invariably turn to tools that we think will help us to foresee such events. This is where macro economic theory comes in. However, for traders who are not well read on such topics, they want to use some thing faster and easier. Then, Technical Analysis comes into play. Using technology, TA can be very fast and handy. Here is a classic example of using TA: http://www.etfguide.com/research/705/8/The-Chart-That-Trumps-Anal...
Post a Comment
Read more

Is Silver Price Lagging Behind Gold Price?

You probably had been hearing a lot about this. I kept hearing this from seminars and some investment gurus. So, I decided to do a simple research and analysis. Here is what I had come up with: The table below shows the Price Ratio of Gold/Silver and the 5-YR Simple Moving Average. To see better, plot a chart to see how the ratios moves over the years. I'd plotted using annual and its 5 period simple moving average. This chart showed that the average price ratio advanced over the years. However, recent 10 years, there seems to be some fluctuations. In fact, it seems that silver price had advanced more aggressively than gold price resulting in a drop of the price ratio. I don't know what the experts based on. If silver price were to advance more than gold, it will bring the ratio even lower near to the ratio 20 years ago. However, if you based on recent 10 years, silver price has to retreat or gold price has to advance in order to go back to the average. Even though the current ...
Post a Comment
Read more

Investing requires a lot of patience

Have you experienced buying stocks when the market has just made major advances or the counter has just moved up higher? Only to face the selling down the next couple of days? Well that must be a lot of of regrets there. Well, the consolation is that you are not alone. I frequently made the same mistake - huh, talking about not making the same mistake twice. This is one monster inside of me that is so difficult to kill. So often, I had forgotten about the commonsense of waiting for market to pull back before entering. This kind of emotion arose from a mixture of fear and greed. Greed in wanting to chase the profit and fear is worrying that the price may go beyond comfortable purchase level. On the hindsight, this is so silly. Pure silliness and nothing else. How many times you have read in the book about where to enter and when to exit. All the theory sounded so simple and logical. But, when at the thick of things, the price movement in the market can be so powerful and dominating ov...
Post a Comment
Read more