Ex Ante – Ex Post

Last Thursday was a public holiday in Malaysia. 26th of April 2007 marked the day of the installation of our latest Agung – the king of kings in Malaysia. Anyway, looking at an ex-ante basis, I guess everyone was glad that there was a holiday after such a long dreadful working month…

But then on an ex post basis, some investors might not feel the same…

“Basket, I can’t believe this. U.S. stock market has to hit all time high on that day, and you know what, regional markets were flying on Thursday as well! And where were we? MARKET CLOSED!” said a friend of mine when we resumed work on Friday.

“But you must admit that you did have a nice holiday celebrating the installation of our new King right?”

“Yeah, but I rather go into the market and make a few thousands bucks more…”

Well, it’s always easy when we do things on an ex post basis, i.e., we only look at it once it’s over. But on an ex ante basis, do you think you will be as gung ho as my friend?

That’s why people say Fund Manager should add more value in terms of judging the market correctly, consistently on an ex ante basis, performing better than the normal investors like you and me. But of course, sh*t happens. It’s always easy to say, ex post, that I should have, I could have buy or sell this and that.

Oh well.

The finance text books in town which touch on the subject of hedging always bring out an important point. Before a trade is being done, you are always concern about the potential downside risks of your investment, thus, you wish to hedge away your downside risk. However, in the end, it might be better off if you don’t hedge. On an ex post basis, it shows that hedging is a waste of time.

But is it so? By performing the pre trade hedge, although at a cost, it does remove all your worries and give you a certain outcome. A sense of security and comfort, and that’s most important of all.

Back to the market, if you pull out any chart, everyone will start sighing…. “ I should have bought in November, sell them off in February, then when the market corrected in end Feb, I should have more balls, going in to the market and grab as much as I could…I should have…”

Usually my response is, “so what are you going to do next?”

“I don’t know, what do you think?”
I think, based on an ex ante basis, I would suggest this:

I am still a firm believer of Come-May-Sell-All-Go-for-Summer-Holiday theory. Thus, will the market correct come May? I don’t know for sure. But I rather miss out the next rally than losing and cursing everyday!

The market is overvalued, if, and only if you believe comparing to historical level is useful. What goes up must come down. I guess that’s the law of nature…

Despite the talk of huge liquidity and the hunger for yield enhancement are dominating the market. But I do strongly believe that our market is quite vulnerable when there’s a change in risk appetite globally. We might not suffer as bad as Indonesia or Thailand, but who knows? Ask the more senior investors, they can tell you a few ringgit drops in a day in Maybank is not something impossible…

So, if you fear of regret, I suggest you should park some money in those stocks that you are familiar with, and if you have some buffer of profit, hold on to it until the correction comes, then you sell all.

But if your cost of entry is very near to its current price, I would suggest you to sell it now, and stay out of the market, until there are cheaper entry prices…

On an Ex Ante basis, what do you say?