Thursday, August 16, 2007

Pacific Andes - 7.9 Point Richter Scale Earthquake in Lima, Peru

This is an urgent update as I have received news about a major earthquake in Lima, Peru. As of this writing, 330 people have been reportedly killed by this earthquake, and a tsunami alert has also been set off just to warn people of possible tsunamis hitting the coastal areas. Pacific Andes and CFG have substantial operations in Peru (fishmeal operations) and so far the companies have updated that they are NO casualties and the main office (80 km north of the epicentre) is doing fine. As communication lines are down, it will take some time before contact can be established with the other offices and plants within Peru. However, I anticipate limited damage for PAH and CFG's operations as their plants were not located close to the quake centre. Still, this is one of those events called "act of God" which no value investor can predict with certainty !

Let us all say a prayer for those who died in this tragedy and also wish those injured a speedy recovery. Life is a lot more precious than the pursuit of money and profits, sometimes I feel ashamed of myself for being such a capitalist prick......oh well we are Singaporeans after all and are so driven by money and wealth that sometimes we fail to see people struggling to survive and get by in such disaster zones. I will strive to do volunteer work when I get older, just to give something back to society.....

Straits Times Index - Drop of 243.43 points within 2 trading days to 3,152.16

This is a special post on the above, which illustrates vividly the effects of a crisis on financial markets. Within just 2 trading days, the STI has lost what it took 4 months to gain. What people don't realize in general is the volatile nature of markets and how important sentiment can be in the functioning of markets. Liquidity is another concern, of course, and if this dries up further we should see more bloodletting and more chances to buy good companies on the cheap.

Dear readers, I urge you to take this sharp correction as a reminder that you should ALWAYS purchase with a reasonable margin of safety; otherwise the steep drop in prices will be all the more painful psychologically for anyone to bear. All humans have a greater loss aversion (about 2x) as compared to reward satisfaction, which means we feel the pain of a loss more than twice the enjoyment of a gain. Thus, during this turbulent time, I would expect more people to sell low and those who have been playing on leverage to feel the sharp prick of the double-edged sword. Take this volatility as a lesson learnt that money is never easy to make consistently in the market, and that value investing helps to buffer against such times by ensuring that you get a decent return (it does not have to be exceptional) on your investment.

Good luck to all investors, and may you all find more good bargains in this market.

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