With the world's economies in chaos how do we invest in this uncertain times? That is the million $ question.
Manage your investments by keeping tab on your investments, you may not understand all of it but at least you know the general direction it is heading to (Growth) you may not know the route to your distination but you must at least have the general direction right which is PROFIT.
The rule of thumb in investment is sell during a bull market and buy in a bear market . When there is a bear market like now everything is falling so when should we buy to position ourself with a good investment? there will always be a dramatic fall that will catch everybody offguard.
One great example is Citigroup at the high it's stock was trading in the region of US$50 now it has plummeted to around US$3.The last time when it was in crisis during the 1990s it traded around the low of US$16. When it fall this time everyone feels that below $25 will be a good price but to their horror it has reached an unbelieveble price of $3.
My first question is what is the downside at this moment? Will the goverment let it fail after pumping BILLIONS of dollars to save them? The risk is if they file for chapter 11 i would lose us$3 per share.
what is the upside with Citigroup after cutting cost by laying off about 50000 employees that will improve their balance sheet, after dumping all that Toxic investment in the credit market and how about downsizing their top executive paychecks .All this measure will definately have a positive impact on this company.The sky is the limit on the upside.
So the bottom line is now i know the downside which if it collapes and $3 per share risk and the upside if it does not collapes around $25-50 per share.So my risk reward ratio is GREAT, now the question is time when will it recover? It will take time but it will recover if all this measure is in place.
Now my next question i need to ask myself am i going to hold this stock for the long term(3-5years) to acheive this goal?Do i have the finanacial strength to hold my investment?
I must have enough liquid cash on hand aproximatly 20-30% against my total asset to support my investment.Even if i have made a great investment i may not see it materialize as i may not have that holding power.
During this crisis comes huge opportunity the question is who can ride out this storm is it you?
By Kelvin Tian
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