In turbulence time likes this, I think going for the undervalued stocks is still one of the best options. In FACT it is an evergreen method , meaning suited in most situations.

Looking at Dow, if a fundamentally ok stock of US 40 dropped to 1sen, don't you think it is a good buy ? if you know it is grossly undervalued. Even at US $ 10, you would still buy, knowing well that some powerful force is using HFT to suppress the prices to let say US $5 or below. Bocs sooner or later you would see the price moving close to US $ 30 to 40 .

And lot of investors are saying CI is odeli too high at 1300 or Dow is high at 11,000, I think it is not justify to say that. So long the undervalued stocks that we hold are still grossly undervalued, we are safe. And the economy is still in a healthy shape.

And talking about Asset Allocation Model . It evolves from the earlier concept of buying low and sell high. So it is still the UNDERVALUED that we buy and SELL HIGH when it is overvalued. Only various types of valuations are incorporated now. For example PE or DCF are added , instead of merely basing the raw form of buying low and selling high ( earlier model )

So asset allocation shares some similarities or growing from the same family tree. It also recognizes the important of keeping some portion of money in cash equivalent form ( Risk Adverse ) until such a time the stocks are undervalued again. It can be Auto ( computerised ) for fund investors , or using Manual for small investors like us.

Whether it is a High end or low end computer, it is still basically a computer.

If you invest in Unit Trusts , basically they are the same, only using a more complex computer model to do the computations.

I think in time like this , we need to go back to the basics ( valuations )

If not , it would be highly speculative likes the DOW, right now. Up and down a few hundred points a day though the fundamentals of a company does not change much within a day.

This post has been edited by SKY 1809: May 9 2010, 05:16 PM

Stocks Vs Interest Bearing Instruments basically got a lot to do with asset allocations.

You start with lower risk assets to produce the expected yields.

For example if your expected yield is 8% a year, then you need to go for lower risk ASSETS such as ASB or REITS instead of investing in High Beta Stocks. If you have exhausted these sources, then you move to assets of higher risks.

Likewise if Interest rate goes up and meets the expectation of a group of investors, they would sell stocks in favour of Interest Bearing Instruments of lower risks.

If EPF could give a dividend of 8 to 10% a year, more investors would sell their unit trusts and park back the money since the objective of 8% is met.

Likewise people would sell off stocks in favour of Cash ( FD ) etc if they believe stocks could produce negative returns in the near future in a bad economy likes the recessions. If lower risk FDs outperform STOCKS. Though interest rates might be falling likes in Year 2008/2009. Cash is King is true in that sense.

So it is not necessary mean a stock becomes overvalued if interest rate is a bit higher.

For those who believe in asset allocations ( and risk factors ), so far wisely accepted by the investment experts worldwide.

This post has been edited by SKY 1809: May 10 2010, 07:09 AM

@Flight,

Thanks for sharing with us.

Your contributions are indeed greatly appreciated.

Lot more to learn from Sifu like you.

Happy Investing.

This post has been edited by SKY 1809: May 19 2010, 12:15 PM