Been Raising Cash

Last week, I have quite a number of trades. Besides buying Hongwei and one other stock before the selldown, I have also disposed two other positions on Friday so as to raise cash.

I have sold my positions in China Precision, C&G Industrial and SP Chemical. Even though China Precision and C&G Industrial are considered to be still undervalued by me, the degree of undervaluation is lower compared to my other positions, in my opinion. Also, I sell them to raise cash, which I have started to do since the last Mar selldown.

The act to raise cash serves a psychological purpose, which is to show that I have taken action to reduce losses in case the market corrects further. In other words, the act to raise cash is to reduce regret aversion. Or in chess terms, you can call it a prophylactic move to avert regret.

The act to raise cash may also help if the market corrects more. I will have the cash to purchase more undervalued stocks. Nonetheless, this may backfire at times if the market recovers, while I am not fully in stocks. In other words, there is a trade-off.

SP Chemical was a sale because of its 3Q 2007 profit warning. As I am not familar with how China's export rebates work for its chemicals, and with the market correction, it becomes one of the really candidate for sale.

Interestingly, I can observe retrospective thinking (or rear-view reasoning) in these market correction. A lot of pundits have been attributing the correction due to US subprimes, market aversion to risks and even yen-carry trade. While I do not know whether these reasons are correct or sufficient to explain the market selldown, I know that the reports often will state these reasons without much support or proof.

As for me, I will try not to theorize so much regarding the causes of market selldown this time. Rather, I will concentrate on buying cheap stocks if market selldown continues. Or maybe even sell a bit more. Let's see how the marlet develops.