Fear, uncertainty and doubt in the stock markets

FUD in online forums
The recent turmoil in the stock markets sees some market players who spread fear, uncertainty and doubt through rumour-mongering and posting of views and opinions that aim to dampen sentiment and create the feeling that the whole market is collapsing and that you should short the market or sell if you are holding on to the stocks that appear to be going down.

In any market, you need to have a willing buyer and a willing seller who agree on the price and the quantity of the goods or services that they wish to transaction. The problem of a fast moving market where prices and moving upwards or downwards quickly is that our capacity for information processing lags behind the news and rumours that affect market participants' views on the situation.

Shortists (kateks) attack
Take these few days activities. The internet chatter on investment forums teams with swarms of people who take a bearish view that the stock market is going to collapse and they want to buy good value shares on the cheap. What some of these people do is that they will take the available news about the sub-prime issue affecting Amercian and European banks and insinuate that the same will happen to the local banks and hint that DBS, UOB and OCBC are not laying out all their cards about how the sub-prime contagion is affecting them.

In my view that is absolute bullsh** because all banks in Singapore are closely regulated by the Monetary Authority of Singapore and if any of these banks have significant exposures that affects the them materiallly or may impact the banking sector adversely, the MAS will have to step in with statements of fact and to boost up the confidence of the banking sector which they have done by talking about them being ready to inject liquidity into the banking system if needed.

The good, the bad and the ugly players in the market
Opposite views in the forums are welcomed but what irks me is when some of these rumour mongers have a vested interest (who is undeclared) and who use fear, uncertainty and doubt to scare the weak sellers into parting of their shares at firesale prices when such actions run against the fundamentals of the company and its business prospects. Such FUD is usually not supported by specific facts or figures but by allusions to possibility that something unknown is looming in the dark waiting to pounce on the unsuspecting investor.

The stock market brings out all types of behaviour in people: the good, the bad and the ugly. And where it comes to profits, the ugly behaviour can be so grotesque and mercenary that it really sickens me to the stomach.

Invest based on your own convictions and principles and remember that make decisions based on information and facts and not on fear, uncertainty and doubt!

Be well and prosper.