Over-reaction - an INefficient Market

Image: The Economist in 1997

Pheim Asset Management's Chief, Dr Tan Chong Koay, says “I need a crash to do well,”.

At this talk at SMU, he speaks about his brand of value investment, where he believes market timing plays an important role in getting his market beating results, and from my perception, he really is a GARP investor (Growth at a Reasonable Price).

He also does not believe that markets are perfectly efficient, in fact, precisely the lack of efficiency is what allows profits to be made.

"Now, not every stock market player can have the courage to plough in when everybody else is selling. There is always the element of risk but savvy investors will know how to assess their chances. “If you want to make money, you need to take calculated risks, and you do not want the market to function efficiently and perfectly. If you believe the equity market is efficient, you will never be a star,” said Tan. However, attempts to time the market perfectly might be futile too. “Trying to buy the shares at the lowest price and sell at the highest is unrealistic,” he said, and after careful study of the company’s fundamentals and making that crucial ‘buy’ decision, “investors need patience to wait for the companies to prove themselves” – and to allow the price to move up to its fair value."

On a separate note, here's another piece I wrote, for those interested in how re-insurance works.