Profit from the Panic! | Investing | Success tips and life stories from Adam Khoo, Asia's top success coach.

Profit from the Panic!

Dear Investors

What you are seeing now in the market is a PANIC!!!! People who have seen their stock value drop by 50% or more cannot take it and are just selling at whatever price they can.

Hedge funds, institutions and people who have borrowed heavily to buy stocks in the last few months, are not able to meet margin calls and are forced to sell. As individuals run to the banks and withdraw whatever money they have left, mutual funds are forced to sell their stock and raise cash to meet this withdrawls. So everyone is SELLING SELLING SELLING at whatever price they can get.

On the other hand, many people with cash are sitting on the sidelines not daring to buy anything for fear that it can go lower.So what happens when you have got millions of sellers and no buyers? Stock prices plunge like a stone! The Dow (8579 pts) is down almost 40% from its highs and the S&P 500 is down 42% to 909 points. This has happened in the last 12 months since the crisis erupted.

When fear and panic happens and people sell irrationally, fundamentals and intrinsic value are thrown out the window. This is exactly what we talked about during Wealth Academy. This is when good companies get dumped together with the bad. (metaphor: This is when people sell 20,000 square foot bungalows on Holland road for $1m). This happened in the 1920s, 1973, 1987, 2002 and now, it is happening again.

Even stocks that are NOT directly related to the financial crisis are being sold at ridiculous prices. Look at Health Care: UNH (intrinsic value (IV) $53) selling @$17.80 , WLP (IV: $95) selling @$36.50 Technology: AAPL (IV: $189) selling@$88.74 Agriculture: MOS (IV:$81)@$36.52 , POT (IV:$184) selling @$92.85, Consumer Staples: KFT (IV:$40) selling@$27.70.

We all know from history and common sense that the market will eventually recover and go to even higher highs. So, why do people still sell when the market is down? Well, because EMOTIONS always overcomes LOGIC in life, even in the markets.

People always fear that THIS IS THE END!!! It will NEVER COME BACK. Also, sometimes it is because people are forced to sell because they have borrowed money to invest or because they need to raise the cash to pay their expenses. This is why you should NEVER borrow to invest or invest with funds that you need for your daily expenses.

So, if you want to emerge a winner, then stay calm, keep your logic and hold and pick up SOUND COMPANIES which are NOT DIRECTLY AFFECTED BY THE CRISIS, have strong balance sheets (low debt, high cash), consistent earnings and a wide economic moat with a high future growth prospects ahead. Here is where you put all your learning s from Wealth Academy to the ultimate test.

If you can do this, you will be one of the very few (like me) who will PROFIT FROM THE PANIC. However, do BEAR in mind (no pun intended), that I personally don’t think this is the lowest point. There is still lots of possibility that the market will still GO LOWER. After breaking the 9000 support, the next support on the Dow is 7500. Meaning it can still go down another 17% from here. Plus, more banks are probably going to fail in the US and in the UK. The UK crisis has just begun and I see that taking a further toll on the market.

This is however, not going to stop me from accumulating strong stocks at discounted prices and accumulating more as it reaches the bottom in a few months. The most important thing is to focus on fundamentally strong stocks that got hit by the collateral damage and avoid the ones that really got hit i.e. Financials. The market will probably not rebound very fast immediately, it will take months or even years for it to climb back up so no rush.

For those of you who have attending my Wealth Academy Program, I will soon email a list of stocks that I am accumulating right now

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14 Comments so far

  1. steve on October 11th, 2008

    Dear Adam,

    I’m from Swtizerland living currently in France. I just bought your book ‘secret of self made millionaires’ in an AirPort shop in Singapour and read it eagerly during the flight.

    I was wondering how to get hard copies of your other books like ‘master your mind, design your destiny’ or ‘i am gifted so are you’. I hate reading long pdf ebooks and i can’t find these hard copies of these books on amazon.

    Thanks in advance for your advice. Steve

  2. Navin on October 12th, 2008

    Hi Adam

    Ever since i bought your CD set Secret of Self made millionaires. Thats where i thought your mails, mentorings, extra help would stop. But noo. Loo and beyond i have been getting excellent newsletters like these again and again from you. I need to tell you these news letters have helped me a lot. I am very grateful for your actual and active mentoring process. This gives me great confidence to try out your other products. As far as i see your CD set is helping me start my own business. I have got down for the first time to Write down the business plan ( Which is a painful process) and almost completed 40% of it. For starters jotting down the business plan was the first step which i needed to conquer. And i will take actions to set it up this time after i am thorough with the Plans. The CD has helped me get out of my procrastination and i plan to implement each and every strategy that you have taught.

    Cheers
    Navin

  3. Investor Tool on October 12th, 2008

    dear,

    how to calculate intrinsic value of a stock?

    thanks

    Investor Tool

  4. Yew Heng on October 13th, 2008

    Hi Investor tool,

    Intrinic value is cummulative projected cash flow or Earning per share of the company brought to present value.

    For this to work, you need to find companies that has history of consistent earnings.

    In this current financial crisis, most companies earning suck and most good companies are undervalue anywhere because of panic selling.

    Yew Heng
    http://www.embraceinternetwealth.com

  5. Lim on October 13th, 2008

    Hi Adam,

    I’m from Malaysia and recently reading your Secret of Millionaire Investors. It is a very interesting book. As I’m a starter in share market investment, I would like to seek for your comment in one of the stock I’m studying (http://www.reuters.com/finance/stocks/overview?symbol=REDI.KL), which is a trading company in Malaysia. I’m stuck when I try to look at the ‘cash flow operation’ and ‘long term debt vs net income’ for this company. This stock seems potential and analysts recommendation rated ‘buy’, but from both financial record as above (negative cash flow and long term debt> 3-4 times of net income), it seems like it is not a good stock? Is this the nature for trading company to have such financial figure? Really looking forward for your comment, hope to hear from you soon. Thanks!

  6. TSK on October 13th, 2008

    Hi Adam, if you think the market will bottom in the next few months, then why not wait, why accumulate now? I just read Jeremy Grantham’s view dated Oct 12, he don’t think market will bottom until 2010. So are you buying too soon. Jeremy think’s the great trap is to buy too soon.

    TSK
    http://smartinvesting18.blogspot.com

  7. Adam Khoo on October 13th, 2008

    The truth is that NOBODY knows where the bottom is. At the same time, NOBODY can ever buy at the bottom, unless they are damn lucky.

    The safest thing to do would be to wait for a market reversal. Right now, the market is in a DOWNTREND. A reversal happens when the market is able to sustain a series of high volume gains and form a new uptrend. This is what people who time the market are waiting for. It is a strategy I also teach at Wealth Academy

    It is a good strategy. However, by the time a new uptrend is confirmed, stock prices would have climbed 20-30% off their lowest point.

    Anybody who claims to be able to PREDICT when the market will bottom is full of bullsh#t. So, pls don’t listen to any of these predictions. There is a very famous stock market strategist that wrote a new york times best seller called the ‘Next Great Bubble Boom’ who predicted that the Dow would be at 14,000 pts in 2010. So which ang moh you going to believe?

  8. Adam Khoo on October 13th, 2008

    Lim

    Never ever buy because analyst rate a stock a buy. In Singapore, all the Top Analysts rated ‘Ferrochina’ a buy. What happened? a few weeks later, it is on the verge of bankruptcy

    Always do your own research using the strategies I have shared in the book. The next time you listen to an analyst, check that he/she is a millionaire from the stock market first.

  9. TSK on October 14th, 2008

    Thanks Adam, I always like to hear your views. Emotions rule the stock market – Greed and Fear of losing out in any potential rally. I would like to share with you what I have tested and discovered todate which is working with 80% accuracy – forecasting the market direction (not predict)including the stock market crash in Oct 08, a technical indicator which can catch STI bottom which I call BMI (you cannot find freely available in the market). I dun follow ang mohs, I only make reference to those who have views in sync with mine. Only when time and tested. Regards

  10. Izzy on October 17th, 2008

    Hi Adam,

    Do you have any free wealth creating seminar for ppl to attend…??? To be frank with you, I cant afford to attend any seminar that cost >$100. Pls advise.

    Rgds,

    Izzy

  11. baman k mehta on November 13th, 2008

    hey Adam,

    our views match… Instead, what make ME happy is when I see my children laughing and playing and learning so fast. What makes me happy is when I see by companies and trainers reaching more and more people every year in so many more countries. What makes me really happy is when I read all the emails about how my books and seminars have touched and inspired someone’s life. What makes me really happy is reading all your wonderful posts about how this BLOG is inspiring you. This happiness makes me feel really good for a long time, much much more than what a Rolex would do for me… is so very true

    i’m 3rd generation but started working when i was 15 and life is so much more meaningful when u know that monet cant buy u happiness it just allows u to search / reach it in comfort

    when u swing by Mumbai, give me a shout

    baman

  12. pankaj chothani on November 15th, 2008

    dear sir ,

    self made millionaires’
    the above siad article is the perfect stroy for the young generation who has made fast money and have failed to save the same due to unrealistic spending .

    i have save the article aand have shared with lot of people ‘conservative living will lead to comfortable life style

    thanks

  13. Thomas on November 20th, 2008

    nice advice. surprising many dont practise.

    A friend lived thru 3 downturns and still missing this one, no cash to cash in.

    The market has a way to intoxicate people

  14. Lim on December 3rd, 2008

    Can anyone teach me how and where to look for ‘risk free interest rate’? I understand that we can get it from 3 months US Treasury bill, but I wonder can Singapore or Malaysia use that rate as well? Thanks.

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