Definition of Panic Seller. This is an investor who:
1. sells on a day when the benchmark falls 2.5% or more,
2. stays away from stocks for at least 20 trading days, and
3. returns only after the initial loss has been recouped.
(Source: Bank of America Merrill Lynch)
`Panic Selling' Doesn't Pay in U.S. Stock Market: Chart of the Day
By - Mar 15, 2011 10:27 PM GMT+0800l
U.S. stock investors who avoid “panic selling” are likely to be rewarded for their patience, according to a study by Bank of America Merrill Lynch.
This conclusion is based on a comparison of the Standard & Poor’s 500 Index with an adjusted version, calculated by the firm. The latter assumes an investor sells on a day when the benchmark falls 2.5 percent or more, stays away from stocks for at least 20 trading days, and returns only after the initial loss has been recouped.
The CHART OF THE DAY compares the S&P 500 with index readings derived from Merrill’s data, which goes back to 1960. The adjusted benchmark would have finished last year at 459.46, about 63 percent lower than its actual close.
“As tempting as it can be to exit the market after a sell- off in an attempt to buy back at a lower price, timing re-entry is very difficult,” David Bianco, chief U.S. equity strategist at the firm, wrote yesterday in a report. “The market’s best days tend to come very close to the worst days.”
Staying invested is a more rewarding strategy as long as the earnings outlook is intact and stocks aren’t too expensive, Bianco wrote. He sees profits climbing 11 percent this year at S&P 500 companies and expects the index to finish the year at 1,400, a gain of 8 percent from yesterday’s close.
There have been 29 years since 1960 in which the S&P 500 had at least one daily decline of 2.5 percent or more, according to Merrill. The panic-selling strategy did better than the index in only six of them, most recently in 2008.
This article below is to remind us what happened in 2008.
Investors Survive Selloff But Worry What's Next
Investors survived the first trading day of the Wall Street financial crisis, but many remained worried about what happens next.
A day after investment bank Lehman Brothers filed for bankruptcy and Merrill Lynch was forced to sell itself to Bank of America, the focus of many investors turned to giant insurer American International Group [AIG 36.78 -0.72 (-1.92%) ], which is struggling for survival.
The market is worried about a possible failure of AIG as early as Tuesday morning, said Matt Cheslock, a senior specialist at Cohen Specialists, and traders just don't want to stick their necks out amid that kind of uncertainty.
"If AIG fails tomorrow morning, it's the same thing written all over this market," Cheslock said. "I don't think anyone is going to want to take any positions overnight."
US stocks closed sharply lower as worries about AIG—on top of the crises at Lehman and Merrill—sparked a 500-point drop in the Dow. Markets in Asia and Europe also sold off, though Tokyo and several other Asian money centers were closed for holidays.
The dollar sank against the yen and the euro.
Oil prices, responding to the turmoil in financial markets more than Hurricane Ike, plunged to $92 a barrel.
The Federal Reserve refused to provide temporary financing for AIG, which has incurred $18 billion in losses over the past three quarters from soured mortgages. But the government has asked Goldman Sachs [GS 157.25 -1.18 (-0.74%) ] and JP Morgan Chase [JPM 44.61 -0.69 (-1.52%) ] to lead a group of banks to offer up to $75 billion in credit for the troubled insurer.
But AIG's survival remains uncertain, and investors are worried that there are other companies that may need to raise capital to cover mortgage-related losses.
Treasury Secretary Henry Paulson said on Monday the U.S. financial system remained sound despite current stresses and he was prepared to take further actions if necessary to maintain stability.
"So far, the efforts of the US government have failed to bring any stability to the financial markets,'' said Kathy Lien, director of currency research at Global Forex Trading.
http://www.cnbc.com/id/26718389/Investors_Survive_Selloff_But_Worry_What_s_Next
No comments:
Post a Comment