Singapore's PSI record breaking day and the stock market

Today Singapore's haze condition made a record breaking point. It was 290 as at 9pm and 321 at 10pm today. A reading of above 300 is deemed hazardous according to the Singapore's national environment agency. The highest was around 227 in 1997. That was a long 16 years ago. The condition is really bad with everyone feeling the impact. My facebook news feed is all about the haze condition and how people are "excited" over the record breaking history. There are people wearing mask on the streets and public transports and I guess tomorrow there will be more people doing that.

The situation now made me thought about a link to the stock market. In times when the stock market made a new record breaking high, more and more amateur investors will want a part of the game.

When the market is very hot, everyone is talking about the stock market and telling stories of how much they made through investing. Even uncles and aunties at the hawker centre are talking about it.

This is a time when the market is getting irrational and stocks are extremely overvalued. It is also a time when savvy investors start to sell and take profit slowly. Once the euphoria is over, the market crashes and everyone is in a panic.

This has happened everytime throughout history. Every crash begins with extreme optimism. The 2008 financial crisis which caused lehman brothers to fall was also built on extreme optimism.  Housing prices in US kept breaking record levels and everyone got into the game which made housing prices rise to unstainable levels.

Again, when the market crashes,  everyone on the street will talk about it and how bad the situation is. When extreme fear sets in, it is also a time for savvy investors to buy fundamentally strong companies at sometimes extremely undervalued prices.

Are you prepared to profit from the panic and guard against extreme optimism?  Start by improving your financial knowledge and be ready at all times.