Shares tumble as all the bears come out
May 25, 2010 - 4:15PM
Australian shares tumbled today, hitting fresh nine-month lows as investors remain spooked by euro-zone instability, while rising tensions on the Korean peninsula also discouraged buyers.
The benchmark S&P/ASX200 index closed down 130.1 points, or 3 per cent, at 4265.3, its lowest close since August. The broader All Ordinaries index was off 126.5 points, or 2.9 per cent, at 4286.3.
At home, all the major sub-indexes were down, with energy shares off 3.9 per cent, materials down 3.7 per cent and financials slumping 3 per cent.
The Aussie dollar also resumed its retreat, dropping nearly 2 US cents to sink to 81.3 US cents.
About $150 billion has been wiped from the market this month, with the All Ordinaries off 11 per cent so far - the biggest slide since October 2008 when the collapse of US investment bank Lehman Brothers sent financial markets into a tailspin.
Europe's fumbling response to a debt crisis in Greece and bulging deficits in other euro-zone countries has unnerved markets, and the central bank takeover of a small Spanish lender at the weekend stoked the latest fears of a wider meltdown.
Across the region, other major markets were also sharply lower. South Korea's Kospi Index was down 4.3 per cent after a report said North Korea ordered its military to prepare for war last week. Japan's Nikkei 225 was off 2.7 per cent, with the benchmark indexes in Hong Kong and Singapore both down more 2 per cent.
“It appears that every single bear in Asia is emerging from its caves. It’s the complete reversal of what we’re seeing yesterday,” said Arab Bank Australia treasury dealer David Scutt. “Banks are being smacked. Commodity producers are being smacked. An all-around bad day for the markets.”
Also, short-term banks bill futures were selling off, Mr Scutt said.
"This is another sign that markets are wary of another liquidity crisis forming and mirrors the increase in Libor rates seen overnight in London."
Libor, the three-month US dollar London interbank offered rate - a key measure of the health of the credit markets - rose to 0.5 per cent overnight, the highest since July 2009. The increase suggests that there is growing caution among banks about lending to each other. Libor hit 3.6 per cent at the end of 2008, during the height of the financial crisis.
“Worryingly, the same feature was seen in the months leading up to and following the collapse of Lehman Brothers in 2008.”
Blue chips tumble
The world’s biggest miner, BHP Billiton, fell $1.52, or 4 per cent, to $36.28 and rival Rio Tinto dropped $2.45, or 3.8 per cent, to $61.70.
Iron ore miner Fortescue renewed its criticism of the government’s mining super profits tax plans and said it is likely to delay plans to start paying dividends due to the proposed tax, warning investors its shares could fall further as a result.
The shares duly extended early losses, to finish down 28 cents, or 7.5 per cent at $3.44.
The four major banks closed lower also.Commonwealth Bank was off $1.92, or 3.7 per cent, at $50.31 and Westpac declined 90 cents, or 3.9 per cent, to $22.26. ANZ closed down 56 cents, or 2.6 per cent, at $21.34 and National Australia Bank was 80 cents, or 3.3 per cent, lower at $23.76.
In the energy sector, Oil Search had dipped 26 cents to $5.25, Woodside was down $1.46, or 3.4 per cent, at $41.37 and Santos gave up 54 cents, or 4.4 per cent, to $11.75.
Flight Centre bucks trend
Flight Centre shares rosed 2.9 per cent to $16.80 after the travel firm upgraded its profit guidance for 2010 to a pretax profit of $190 million to $200 million, up from forecasts of $160 million to $180 million.
Healthscope saw its shares slip 1.9 per cent to $5.15, after private equity firm Blackstone Group joined a group bidding $US1.5 billion for the hospital operator, a source familiar with the situation said.
Minara Resources fell 4.5 cents, or 6.3 per cent, to 66.50 cents after it said it is looking offshore to more desirable tax jurisdictions.
Transurban declined 11 cents, or 2.5 cents, to $4.30 after the Takeovers Panel has refused to make interim orders sought to stop a rights issue by the toll roads operator.
Agribusiness and real estate group Ruralco Holdings was steady at $2.50 after it said it expected a solid full year financial result after boosting first half net profit by 23 per cent.
The most traded stock by volume was Australian Mines, with 222.32 million shares changing hands for $222,328 thousand. The stock was steady at 0.1 of a cent.
Preliminary national turnover was 2.26 billion shares worth $5.91 billion, with 250 stocks up, 867 down and 256 unchanged.
Losses 'overdone'
The Australian market has fallen 14 percent from its recent peak in April as the European worries, the Australian dollar's fall and a planned mining tax whacked sentiment.
"It is definitely overdone, the forward P/E of the market is 10 times which is extraordinarily low," said E.L. & C. Baillieu director Richard Morrow.
The long-term average forward price/earnings ratio for Australian stocks is around 14 times.
"People are staring down the barrel at this horrendous tax and everything has gone into abeyance ahead of that," he said.
http://www.smh.com.au/business/markets/shares-tumble-as-all-the-bears-come-out-20100525-w8i2.html
Showing posts with label Panic sell. Show all posts
Showing posts with label Panic sell. Show all posts
Tuesday 25 May 2010
Friday 7 May 2010
Panic sends Dow to worst ever drop
Panic sends Dow to worst ever drop
MARINE LAOUCHEZ
May 7, 2010 - 8:49AM
AFP
Panic selling swept US markets on Thursday as the Dow Jones plunged a record of almost 1000 points before recouping more than half those losses.
It was unclear whether the sudden sell-off, the Dow's biggest ever intra-day drop, was the result of fears over the Greek debt crisis, a mistaken trade or technical error.
The crash began shortly before 2.25pm local time, when in a white-knuckle 20 minutes America's top 30 firms saw their share prices dive 998.5 points, almost nine per cent, wiping out billions in market value.
The drop eclipsed even the crashes seen when markets reopened after September 11, 2001 and in the wake of the Lehman Brothers collapse.
The Dow later recovered, closing nearly four per cent down, but spooked traders were left wondering whether a technical glitch had caused the blue-chip index to erode three months of solid gains.
Rumours swirled that a Citigroup trader had mistakenly sold 16 billion rather than 16 million stocks in Procter and Gamble shares, forcing the Dow down.
Shares in the consumer goods giant lost more than seven US dollars, falling in a similar pattern to the Dow, trading at a low of 55 US dollars a share.
"At this point, we have no evidence that Citi was involved in any erroneous transaction," said company spokesman Stephen Cohen.
A spokesperson for the New York Stock Exchange said the cause was still not known.
"We don't know, right now we're looking into it," said Christian Braakman, "it's all speculation."
But after three days in which stocks have suffered triple-digit intra-day losses because of concern about Greece's debt crisis, it was clear that the sell-off was real for some investors.
At the close, the Dow had recovered to 10,520.32, down 347.80 (3.20 per cent), while the Nasdaq was down 82.65 points (3.44 per cent) at 2,319.64. The Standard & Poors 500 Index was down 37.72 points (3.24 per cent) to 1,128.15.
Images of rioting as the Greek parliament passed unpopular austerity measures did little to ease market panic.
The parliament approved billions of euros of spending cuts pledged in exchange for a 110 billion euros ($A155 billion) EU-IMF bailout just one day after three bank workers died in a firebomb attack during a huge protest.
On Thursday, police charged to scatter hundreds of youths at the tail-end of a new protest outside parliament that drew more than 10,000 people.
In Lisbon, European Central Bank chief Jean-Claude Trichet battled to reassure financial markets that Greece's debt crisis would not end in default, but could not prevent the euro from falling to a 14-month low against the dollar.
Pleas for patience from the White House also had little impact.
The White House said that reforms in Greece were "important" but would take time and that the US Treasury was monitoring the situation.
"The president has heard regularly from his economic team," said White House spokesman Robert Gibbs, adding that President Barack Obama's top economic officials were closely communicating with their European counterparts.
© 2010 AFP
http://news.smh.com.au/breaking-news-business/panic-sends-dow-to-worst-ever-drop-20100507-uhgu.html
US stocks plummet, then recover some losses
US stocks plummet, then recover some losses
May 7, 2010 - 6:56AM
US stocks plunged 9 per cent in the last two hours of trading overnight before clawing back some of the losses as the escalating debt crisis in Europe stoked fears a new credit crunch was in the making.
The Dow suffered its biggest ever intraday point drop, which may have been caused by an erroneous trade entered by a person at a big Wall Street bank, multiple market sources said.
Indexes recovered some of their losses heading into the close but equities had erased much of their gains for the year to end down just over 3 percent, the biggest fall since April 2009.
"We did not know what a stock was worth today, and that is a serious problem," said Joe Saluzzi of Themis Trading in New Jersey.
Traders around the world were shaken from their beds and told to start trading amid the plunge as investors sought to stem losses in the rapid market sell-off.
Declining stocks outnumbered advancers on the New York Stock Exchange by more than 17 to 1. Volume soared to it highest level this year by far.
Nasdaq said it was investigating potentially erroneous transactions involving multiple securities executed between 2.40pm and 3pm New York time.
Investors had been on edge throughout the trading day after the European Central Bank did not discuss the outright purchase of European sovereign debt as some had hoped they would to calm markets, but gave verbal support instead to Greece's savings plan, disappointing some investors.
The Dow Jones industrial average dropped 347.80 points, or 3.20 per cent, to 10,520.32. The Standard & Poor's 500 Index fell 37.75 points, or 3.24 per cent, to 1128.15. The Nasdaq Composite Index lost 82.65 points, or 3.44 per cent, to 2319.64.
The sell-off was broad and deep with all 10 of the S&P 500 sectors falling 2 to 4 per cent. The financial sector was the worst hit with a fall of 4.1 per cent.
Selling hit some big cap stocks. Bank of America was the biggest percentage loser on the Dow, falling 7.1 per cent to $US16.28. All 30 component of the Dow closed lower.
An index known as Wall Street's fear gauge, the CBOE Volatility Index closed up more than 30 per cent at its highest close since May 2009. It had earlier risen as much as 50 per cent.
The mounting fears about a spreading debt crisis in Europe curbed the appetite for risk and put a report of weak US retail sales into sharper relief. Most top retail chains reported worse-than-expected same-store sales for April, sparking concerns about consumer spending, the main engine of the US economy.
That hit shares including warehouse club Costco Wholesale Corp, which fell 3.9 per cent to $US58.03, and apparel maker Gap Inc, which lost 7.2 per cent at $US22.91.
The head of the ECB, Jean-Claude Trichet, said on Thursday that Spain and Portugal were not in the same boat as Greece, but the risk premium that investors demand to hold Portuguese and Spanish government bonds flared to record highs.
Reuters
http://www.smh.com.au/business/markets/us-stocks-plummet-then-recover-some-losses-20100507-uh8l.html
May 7, 2010 - 6:56AM
US stocks plunged 9 per cent in the last two hours of trading overnight before clawing back some of the losses as the escalating debt crisis in Europe stoked fears a new credit crunch was in the making.
The Dow suffered its biggest ever intraday point drop, which may have been caused by an erroneous trade entered by a person at a big Wall Street bank, multiple market sources said.
Indexes recovered some of their losses heading into the close but equities had erased much of their gains for the year to end down just over 3 percent, the biggest fall since April 2009.
"We did not know what a stock was worth today, and that is a serious problem," said Joe Saluzzi of Themis Trading in New Jersey.
Traders around the world were shaken from their beds and told to start trading amid the plunge as investors sought to stem losses in the rapid market sell-off.
Declining stocks outnumbered advancers on the New York Stock Exchange by more than 17 to 1. Volume soared to it highest level this year by far.
Nasdaq said it was investigating potentially erroneous transactions involving multiple securities executed between 2.40pm and 3pm New York time.
Investors had been on edge throughout the trading day after the European Central Bank did not discuss the outright purchase of European sovereign debt as some had hoped they would to calm markets, but gave verbal support instead to Greece's savings plan, disappointing some investors.
The Dow Jones industrial average dropped 347.80 points, or 3.20 per cent, to 10,520.32. The Standard & Poor's 500 Index fell 37.75 points, or 3.24 per cent, to 1128.15. The Nasdaq Composite Index lost 82.65 points, or 3.44 per cent, to 2319.64.
The sell-off was broad and deep with all 10 of the S&P 500 sectors falling 2 to 4 per cent. The financial sector was the worst hit with a fall of 4.1 per cent.
Selling hit some big cap stocks. Bank of America was the biggest percentage loser on the Dow, falling 7.1 per cent to $US16.28. All 30 component of the Dow closed lower.
An index known as Wall Street's fear gauge, the CBOE Volatility Index closed up more than 30 per cent at its highest close since May 2009. It had earlier risen as much as 50 per cent.
The mounting fears about a spreading debt crisis in Europe curbed the appetite for risk and put a report of weak US retail sales into sharper relief. Most top retail chains reported worse-than-expected same-store sales for April, sparking concerns about consumer spending, the main engine of the US economy.
That hit shares including warehouse club Costco Wholesale Corp, which fell 3.9 per cent to $US58.03, and apparel maker Gap Inc, which lost 7.2 per cent at $US22.91.
The head of the ECB, Jean-Claude Trichet, said on Thursday that Spain and Portugal were not in the same boat as Greece, but the risk premium that investors demand to hold Portuguese and Spanish government bonds flared to record highs.
Reuters
http://www.smh.com.au/business/markets/us-stocks-plummet-then-recover-some-losses-20100507-uh8l.html
'Fat finger' trade forces US stocks dive
'Fat finger' trade forces US stocks dive
May 7, 2010 - 6:30AM
The biggest intraday point drop ever for the Dow Jones Industrial Average may have been caused by an erroneous trade entered by a person at a big Wall Street bank that in turn triggered widespread panic-selling.
At one stage, the Dow was down a whopping 998 points - or 9 per cent - before rebounding but it was still sharply lower for the session as continuing worries about Greece and the so-called sovereign debt contagion ate into investor confidence.
The so-called "fat finger" trade apparently involved an exchange-traded fund that holds shares of some of the biggest and most widely traded stocks, sources said. The trade apparently was put in on the Nasdaq Stock Market, sources said.
But US stocks still ended sharply lower, as continuing worries about the debt crisis in Greece ate into market confidence, prompting a wide-spread sell-off.
US stocks posted their largest percentage drop since April 2009, with all three major indexes ending down more than 3 per cent.
Indexes earlier in the afternoon had plunged even more steeply, before paring losses.
Observers questioned why Procter & Gamble’s stock tumbled precipitously - and some say that could have been behind the massive plunge.
Both Fox News and CNBC reported that a trading error involving P&G stock could have been responsible for part of a dip that dragged the Dow Jones Industrial Average within a hair’s breadth of a 1000-point drop.
The sudden sell-off saw investors desert stocks wholesale.
But P&G’s stock, which had been trading at $US62, suddenly began to crash, falling around 20 per cent at one point for no apparent reason.
The Dow Jones industrial average ended down 347.80 points, or 3.2 per cent, at 10,520.32. The Standard & Poor's 500 Index was off 37.75 points, or 3.24 per cent, at 1128.15. The Nasdaq Composite Index was down 82.65 points, or 3.44 per cent, at 2319.64.
Several sources said the speculation is that the trade was entered by someone at Citigroup. A Citigroup spokesman said it was investigating the rumour but that the bank currently had no evidence that an erroneous trade had been made.
http://www.smh.com.au/business/markets/fat-finger-trade-forces-us-stocks-dive-20100507-uh91.html
May 7, 2010 - 6:30AM
The biggest intraday point drop ever for the Dow Jones Industrial Average may have been caused by an erroneous trade entered by a person at a big Wall Street bank that in turn triggered widespread panic-selling.
At one stage, the Dow was down a whopping 998 points - or 9 per cent - before rebounding but it was still sharply lower for the session as continuing worries about Greece and the so-called sovereign debt contagion ate into investor confidence.
The so-called "fat finger" trade apparently involved an exchange-traded fund that holds shares of some of the biggest and most widely traded stocks, sources said. The trade apparently was put in on the Nasdaq Stock Market, sources said.
But US stocks still ended sharply lower, as continuing worries about the debt crisis in Greece ate into market confidence, prompting a wide-spread sell-off.
US stocks posted their largest percentage drop since April 2009, with all three major indexes ending down more than 3 per cent.
Indexes earlier in the afternoon had plunged even more steeply, before paring losses.
Observers questioned why Procter & Gamble’s stock tumbled precipitously - and some say that could have been behind the massive plunge.
Both Fox News and CNBC reported that a trading error involving P&G stock could have been responsible for part of a dip that dragged the Dow Jones Industrial Average within a hair’s breadth of a 1000-point drop.
The sudden sell-off saw investors desert stocks wholesale.
But P&G’s stock, which had been trading at $US62, suddenly began to crash, falling around 20 per cent at one point for no apparent reason.
The Dow Jones industrial average ended down 347.80 points, or 3.2 per cent, at 10,520.32. The Standard & Poor's 500 Index was off 37.75 points, or 3.24 per cent, at 1128.15. The Nasdaq Composite Index was down 82.65 points, or 3.44 per cent, at 2319.64.
Several sources said the speculation is that the trade was entered by someone at Citigroup. A Citigroup spokesman said it was investigating the rumour but that the bank currently had no evidence that an erroneous trade had been made.
http://www.smh.com.au/business/markets/fat-finger-trade-forces-us-stocks-dive-20100507-uh91.html
Monday 29 March 2010
Check the charts occasionally to sense mob hysteria or panic at work
Some people in the markets use graphs of previous stocks or commodity movements in order to predict future price movements. They are called "technicians" or "chartists." They spend a lot of time pouring over the historic price movements and the formations these show on their charts as a way to predict what will happen next.
Ordinarily, I do not use charts to trade. Occasionally, I will turn to them as a way to see what has been happening and to check facts if I sense mob hysteria or panic at work.
Charts sometimes reveal a beeline rise, an indication that prices have increased far beyond actual value. It means that people have lost perspective. It shows the level of the hysteria. I know that prices will eventually return to the appropriate level, so I sell short. You need to be careful, though, that you are not selling short simply because prices are high. Never sell short unless prices are astronomically expensive, AND you detect negative change coming.
You can see panic in falling prices when you see them collapsing straight down day after day for extended periods. Historically, long periods of selling have ended in "selling climaxes" when everyone finally panics and dumps to get out of the market at any price no matter what the fundamental reality might be. Large price declines across the board should attract your attention.
A good rule of thumb is to sell during times of market hysteria and buy during times of panic. Always remember to buy low and sell high.
Ref:
Jim Rogers
A Gift to My Children
Ordinarily, I do not use charts to trade. Occasionally, I will turn to them as a way to see what has been happening and to check facts if I sense mob hysteria or panic at work.
Charts sometimes reveal a beeline rise, an indication that prices have increased far beyond actual value. It means that people have lost perspective. It shows the level of the hysteria. I know that prices will eventually return to the appropriate level, so I sell short. You need to be careful, though, that you are not selling short simply because prices are high. Never sell short unless prices are astronomically expensive, AND you detect negative change coming.
You can see panic in falling prices when you see them collapsing straight down day after day for extended periods. Historically, long periods of selling have ended in "selling climaxes" when everyone finally panics and dumps to get out of the market at any price no matter what the fundamental reality might be. Large price declines across the board should attract your attention.
A good rule of thumb is to sell during times of market hysteria and buy during times of panic. Always remember to buy low and sell high.
Ref:
Jim Rogers
A Gift to My Children
Selling Hysteria
For the most part, it is in short-term trades that prices are driven by emotion. Mid-term and long-term investments are usually influenced more by the fundamentals.
Bubbles burst in the wake of hysteria, while plummeting prices usually end in panic.
You can see panic in falling prices when you see them collapsing straight down day after day for extended periods. Historically, long periods of selling have ended in "selling climaxes" when everyone finally panics and dumps to get out of the market at any price no matter what the fundamental reality might be.
Large price declines across the board should attract your attention. A good rule of thumb is to sell during times of market hysteria and buy during times of panic.
Always remember to buy low and sell high. It sounds so simple, but it is extremely difficult. Just keep this dictum in mind always - especially when your emotions are getting the best of you.
Ref:
Jim Rogers
A Gift to My Children
Bubbles burst in the wake of hysteria, while plummeting prices usually end in panic.
You can see panic in falling prices when you see them collapsing straight down day after day for extended periods. Historically, long periods of selling have ended in "selling climaxes" when everyone finally panics and dumps to get out of the market at any price no matter what the fundamental reality might be.
Large price declines across the board should attract your attention. A good rule of thumb is to sell during times of market hysteria and buy during times of panic.
Always remember to buy low and sell high. It sounds so simple, but it is extremely difficult. Just keep this dictum in mind always - especially when your emotions are getting the best of you.
Ref:
Jim Rogers
A Gift to My Children
Saturday 17 October 2009
When you are caught in a market panic
In fact, the only rational thing to do is take courage and make buys. Being gutsy enough to act on our contrarian test - refusing to sell good stocks cheap because Wall Street and Main Street have lost faith for a few days - ensures that your earlier selling at better levels, or not at all, will prove appropriate.
It will be emotionally difficult to buy in a panic. those who can do so are demonstrably rational and therefore also calm enough to sell with discipline as the prior highs approached.
So, should you find yourself in the midst of a crisis in the future, remember:
•Do not engage in panic selling.
•Sit tight and stick to your strategy.
•If you are a long-term, buy-and-hold investor, do hold on.
•If you are an adventurous investor, follow your strategy to buy on dips.
Make sure your overall portfolio is designed to limit your potential losses during a substantial market decline.
It will be emotionally difficult to buy in a panic. those who can do so are demonstrably rational and therefore also calm enough to sell with discipline as the prior highs approached.
So, should you find yourself in the midst of a crisis in the future, remember:
•Do not engage in panic selling.
•Sit tight and stick to your strategy.
•If you are a long-term, buy-and-hold investor, do hold on.
•If you are an adventurous investor, follow your strategy to buy on dips.
Make sure your overall portfolio is designed to limit your potential losses during a substantial market decline.
Monday 11 May 2009
Mistakes to Avoid - Panicking When the Market Is Down
Panicking When the Market Is Down
Going against the grain takes courage but pays off.
Stocks are generally more attractive when no one else wants to buy them, not when barbers are giving stock tips. It's very tempting to look for VALIDATION - or other people doing the same thing - when you're investing, but history has shown repeatedly that assets are cheap when everyone else is avoiding them. (Sir John Templeton: "The time of maximum pessimism is the best time to buy.")
1979: Business Week cover story asked the question, "The Death of Equities?"
Not long after, it was the start of an 18 year bull market in stocks.
1999: Barron's featured Warren Buffett on its cover, asking, "What's Wrong, Warren?" and bemoaning Buffett's aversion to technology stocks.
Over the next three years, the Nasdaq tanked more than 60 percent, and Berkshire Hathaway shares appreciated 40%.
Morningstar has conducted every year for the past several years, in which the performance of unpopular funds were looked at. The asset classes that everyone hated outperformed the ones that everyone loved in all but one rolling three-year period over the past dozen years.
The difference can be striking. For example, investors who went where others feared to tread and bought the three least-popular fund categories at the beginning of 2000 would have had roughly flat investment returns over the subsequent three years. That was much better than the market's average annual loss of about 15% over the same time period and miles ahead of the performance of the popular fund categories, which declined an average of 26% during the three-year period.
Going against the grain takes courage, but that courage pays off. You'll do better as an investor is you think for yourself and seek out bargains in parts of the market that everyone else has forsaken, rather than buying the flavour of the month in the financial press.
Going against the grain takes courage but pays off.
Stocks are generally more attractive when no one else wants to buy them, not when barbers are giving stock tips. It's very tempting to look for VALIDATION - or other people doing the same thing - when you're investing, but history has shown repeatedly that assets are cheap when everyone else is avoiding them. (Sir John Templeton: "The time of maximum pessimism is the best time to buy.")
1979: Business Week cover story asked the question, "The Death of Equities?"
Not long after, it was the start of an 18 year bull market in stocks.
1999: Barron's featured Warren Buffett on its cover, asking, "What's Wrong, Warren?" and bemoaning Buffett's aversion to technology stocks.
Over the next three years, the Nasdaq tanked more than 60 percent, and Berkshire Hathaway shares appreciated 40%.
Morningstar has conducted every year for the past several years, in which the performance of unpopular funds were looked at. The asset classes that everyone hated outperformed the ones that everyone loved in all but one rolling three-year period over the past dozen years.
The difference can be striking. For example, investors who went where others feared to tread and bought the three least-popular fund categories at the beginning of 2000 would have had roughly flat investment returns over the subsequent three years. That was much better than the market's average annual loss of about 15% over the same time period and miles ahead of the performance of the popular fund categories, which declined an average of 26% during the three-year period.
Going against the grain takes courage, but that courage pays off. You'll do better as an investor is you think for yourself and seek out bargains in parts of the market that everyone else has forsaken, rather than buying the flavour of the month in the financial press.
Wednesday 4 March 2009
The Case for Dumping Everything Now
The Case for Dumping Everything Now
By Dan Caplinger March 3, 2009 Comments (14)
By now, you must be tired of hearing about how, after witnessing the worst stock market losses in generations, you should simply have faith and keep investing. Common sense says it's ridiculous. Why should you throw good money into the market right now, when no one has a clue what the future will look like mere weeks from now, let alone in the years to come?
You don't need me to come up with reasons why you should get out now. Just take a look at the latest news:
All the government action we've seen over the past six months just seems to have made a bad situation worse, shaking the foundations of our capitalist system to the core.
Even after all the damage we've seen in the housing market, home prices could easily keep falling further than they have already.
Stocks fell Monday to their lowest levels in 12 years, and with November's lows broken, some believe that's just the start of another major downturn that could lop another 40% off the major indexes.
Given all that, the argument in favor of selling everything for whatever you can get basically boils down to three points:
Sounds reasonable. Sign me up.
Oh, come on! As a skeptic and a lover of conspiracy theories, part of me really sympathizes with this train of thought. Having dropped so far so quickly, there's no apparent reason why the market couldn't drop more. Plenty of investors have lost so much already that they may well not be able to afford to take any more risk with their life savings. Whether mere greed or a simple failure to understand the risk of the stock market got them into stocks, it's unfortunate that so many people have gotten hurt by these declines.
But all this pessimism really just looks like an amplified version of what you always see at market extremes. When stocks are flying, as they were in 2007, no one thinks they'll ever stop. Once they've crashed and burned, as they did in 1982 and 2002, people think they'll never come back.
Change does happen
That's not to say that every stock will survive. Countless firms went under during the Great Depression. Among the Nifty 50 stocks of the 1960s and 1970s, companies like Polaroid saw their huge rises turn to declines. Polaroid went nowhere for decades before eventually declaring bankruptcy.
Similarly, this time around, many companies will never see their former strength restored. I don't know whether big financial firms such as Citigroup (NYSE: C) and Bank of America (NYSE: BAC) will share Polaroid's fate. They might.
But like so many times in the past, they may well recover from the abyss and deliver great returns. Consider how some of these Nifty 50 stocks -- the same ones that did so badly in the 1973-74 bear market -- did when they finally bounced back:
Nifty 50 Stock
Return 1/1/1973 to 12/31/1974
Return 1/1/1975 to 3/2/2009
Coca-Cola (NYSE: KO)
(62.8%)
9,350%
IBM (NYSE: IBM)
(45.6%)
2,046%
3M (NYSE: MMM)
(44.4%)
2,216%
Procter & Gamble (NYSE: PG)
(24.2%)
4,732%
Disney (NYSE: DIS)
(82.2%)
4,621%
Source: Yahoo! Finance.
These stocks may again prove to be tomorrow's leaders -- or get replaced by others. But the important thing for investors is that some companies will survive to see their stocks flourish.
As attractive as the case for dumping everything now may seem, it's not the right move. Unless you truly believe the end of everything is nigh, betting on the long-term recovery of the world economy is the best choice -- and it's likely to pay off, given enough time.
For more on getting your portfolio back on track, read about:
The ultimate safe-haven investment.
Is it finally time to buy bank stocks?
Investing in the best companies on Earth.
Fool contributor Dan Caplinger is willing to go down with the ship -- at least with some of his money. He doesn't own shares of the companies mentioned in this article. 3M, Coca-Cola, and Disney are Motley Fool Inside Value selections. Disney is a Motley Fool Stock Advisor pick. Try any of our Foolish newsletter services free for 30 days. The Fool's disclosure policy will never dump you.
Read/Post Comments (14)
http://www.fool.com/investing/value/2009/03/03/the-case-for-dumping-everything-now.aspx
By Dan Caplinger March 3, 2009 Comments (14)
By now, you must be tired of hearing about how, after witnessing the worst stock market losses in generations, you should simply have faith and keep investing. Common sense says it's ridiculous. Why should you throw good money into the market right now, when no one has a clue what the future will look like mere weeks from now, let alone in the years to come?
You don't need me to come up with reasons why you should get out now. Just take a look at the latest news:
All the government action we've seen over the past six months just seems to have made a bad situation worse, shaking the foundations of our capitalist system to the core.
Even after all the damage we've seen in the housing market, home prices could easily keep falling further than they have already.
Stocks fell Monday to their lowest levels in 12 years, and with November's lows broken, some believe that's just the start of another major downturn that could lop another 40% off the major indexes.
Given all that, the argument in favor of selling everything for whatever you can get basically boils down to three points:
- The cyclical nature of the economy has ended, and there's no hope that businesses can grow or even come close to their past glory.
- Everything that everyone has done to try to support the economy will ultimately fail.
- Once everyone figures out that the only thing holding up this house of cards is unsustainable government spending, people will abandon the current economic system, and all the financial assets that previously held so much value will become worthless.
Sounds reasonable. Sign me up.
Oh, come on! As a skeptic and a lover of conspiracy theories, part of me really sympathizes with this train of thought. Having dropped so far so quickly, there's no apparent reason why the market couldn't drop more. Plenty of investors have lost so much already that they may well not be able to afford to take any more risk with their life savings. Whether mere greed or a simple failure to understand the risk of the stock market got them into stocks, it's unfortunate that so many people have gotten hurt by these declines.
But all this pessimism really just looks like an amplified version of what you always see at market extremes. When stocks are flying, as they were in 2007, no one thinks they'll ever stop. Once they've crashed and burned, as they did in 1982 and 2002, people think they'll never come back.
Change does happen
That's not to say that every stock will survive. Countless firms went under during the Great Depression. Among the Nifty 50 stocks of the 1960s and 1970s, companies like Polaroid saw their huge rises turn to declines. Polaroid went nowhere for decades before eventually declaring bankruptcy.
Similarly, this time around, many companies will never see their former strength restored. I don't know whether big financial firms such as Citigroup (NYSE: C) and Bank of America (NYSE: BAC) will share Polaroid's fate. They might.
But like so many times in the past, they may well recover from the abyss and deliver great returns. Consider how some of these Nifty 50 stocks -- the same ones that did so badly in the 1973-74 bear market -- did when they finally bounced back:
Nifty 50 Stock
Return 1/1/1973 to 12/31/1974
Return 1/1/1975 to 3/2/2009
Coca-Cola (NYSE: KO)
(62.8%)
9,350%
IBM (NYSE: IBM)
(45.6%)
2,046%
3M (NYSE: MMM)
(44.4%)
2,216%
Procter & Gamble (NYSE: PG)
(24.2%)
4,732%
Disney (NYSE: DIS)
(82.2%)
4,621%
Source: Yahoo! Finance.
These stocks may again prove to be tomorrow's leaders -- or get replaced by others. But the important thing for investors is that some companies will survive to see their stocks flourish.
As attractive as the case for dumping everything now may seem, it's not the right move. Unless you truly believe the end of everything is nigh, betting on the long-term recovery of the world economy is the best choice -- and it's likely to pay off, given enough time.
For more on getting your portfolio back on track, read about:
The ultimate safe-haven investment.
Is it finally time to buy bank stocks?
Investing in the best companies on Earth.
Fool contributor Dan Caplinger is willing to go down with the ship -- at least with some of his money. He doesn't own shares of the companies mentioned in this article. 3M, Coca-Cola, and Disney are Motley Fool Inside Value selections. Disney is a Motley Fool Stock Advisor pick. Try any of our Foolish newsletter services free for 30 days. The Fool's disclosure policy will never dump you.
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http://www.fool.com/investing/value/2009/03/03/the-case-for-dumping-everything-now.aspx
Wednesday 4 February 2009
Why selling is a common problem
Why selling is a common problem
Published: 2009/02/04
Most investors tend to agree that the decision to sell a stock is one of the most difficult to make. Sometimes it is more difficult to decide when and what to sell than to buy. Ever wondered why?
* People tend to sell winners too soon and hold on to losers too long
You will find that regardless of whether the market is running hot or is coming down, there are still a lot of people out there who either sell their stocks too early only to realize that the prices continue to soar, or hold on to losers for too long only to see them continue to bleed further.
From a behavioural finance standpoint, this phenomenon is held by Hersh Shefrin and Meir Statman (1985) as the "disposition effect". This was discovered from their research entitled, "The disposition to sell winners too early and ride losers too long: theory and evidence".
Based on research, individual investors are more likely to sell stocks that have gone up in value, rather than those that have gone down. By not selling, they are hoping that the price of the losers will eventually go back to their purchase price or even higher, saving them from experiencing a painful loss.
In the end, most investors will end up selling good quality stocks the minute the prices move up and hold on to those poor fundamental stocks for the long term, while the performances of these stocks continue to deteriorate.
* People tend to forget their original objectives
In stock market investment, there are two types of investment activities, trading versus investing. Trading means "buy and sell" while investing means "buy and hold". The stock selection criteria for these two types of activities are entirely different.
Most of the time those involved in trading will choose stocks based on factors which will affect the price movement in short term, paying less attention to the companies' fundamentals whereas those involved in investment will go for good quality stocks which are more suitable for long-term holding.
However, you will find that many people get their objectives mixed up in the process. They get distracted by external factors so much so that some panic when the market goes in the direction that is not in line with their expectation, and as a result, end up selling the stocks that they find too expensive to buy back later.
On the other hand, some force themselves to change the status of the stocks that were originally meant for short-term trading into long-term investment as they are unable to face the harsh fact that they have to sell the stocks at a loss, even though they know that the stocks are not good fundamental stocks that can appreciate in value.
So, when to sell then?
There are few different schools of thoughts on this. Based on the advice from the investments gurus, like Benjamin Graham, Warren Buffet and Philip Fisher, when you buy a stock, you need to make sure that you understand the companies that you are buying, and these are good fundamental stocks, which will provide good income and appreciate in value in long term.
Therefore, you will be treating your stock purchase as a business you bought, which is meant for long term. You should not be affected by any temporary price movement due to overall market volatility.
You will only consider selling the company if the growth of the company's intrinsic value falls below "satisfactory" level or you find out that a mistake was made in the original analysis as you grow more familiar to the business or industry.
However, if you find that your investment portfolio is highly concentrated on one single company, then you might want to consider diversifying your portfolio and lowering your risk.
Any single investment that is more than 10 per cent to 15 per cent of your portfolio value should be reconsidered no matter how solid the company performance or prospect is, suggested Pat Dorsey of Morningstar.
Last but not least, if you find that by selling the stock, you can invest the money in a better option, then that is a good reason to sell.
In summary, successful investing is highly dependent on your self-discipline, taking away the emotional factors and not going with the crowd. It should always be backed by sound investment principles.
Always remember there is no short cut in investment, only hard work and patience.
Securities Industry Development Corp, the leading capital markets education, training and information resource provider in Asean, is the training and development arm of the Securities Commission. It was established in 1994 and incorporated in 2007.
http://www.btimes.com.my/Current_News/BTIMES/articles/SIDC2/Article/index_html
Published: 2009/02/04
Most investors tend to agree that the decision to sell a stock is one of the most difficult to make. Sometimes it is more difficult to decide when and what to sell than to buy. Ever wondered why?
* People tend to sell winners too soon and hold on to losers too long
You will find that regardless of whether the market is running hot or is coming down, there are still a lot of people out there who either sell their stocks too early only to realize that the prices continue to soar, or hold on to losers for too long only to see them continue to bleed further.
From a behavioural finance standpoint, this phenomenon is held by Hersh Shefrin and Meir Statman (1985) as the "disposition effect". This was discovered from their research entitled, "The disposition to sell winners too early and ride losers too long: theory and evidence".
Based on research, individual investors are more likely to sell stocks that have gone up in value, rather than those that have gone down. By not selling, they are hoping that the price of the losers will eventually go back to their purchase price or even higher, saving them from experiencing a painful loss.
In the end, most investors will end up selling good quality stocks the minute the prices move up and hold on to those poor fundamental stocks for the long term, while the performances of these stocks continue to deteriorate.
* People tend to forget their original objectives
In stock market investment, there are two types of investment activities, trading versus investing. Trading means "buy and sell" while investing means "buy and hold". The stock selection criteria for these two types of activities are entirely different.
Most of the time those involved in trading will choose stocks based on factors which will affect the price movement in short term, paying less attention to the companies' fundamentals whereas those involved in investment will go for good quality stocks which are more suitable for long-term holding.
However, you will find that many people get their objectives mixed up in the process. They get distracted by external factors so much so that some panic when the market goes in the direction that is not in line with their expectation, and as a result, end up selling the stocks that they find too expensive to buy back later.
On the other hand, some force themselves to change the status of the stocks that were originally meant for short-term trading into long-term investment as they are unable to face the harsh fact that they have to sell the stocks at a loss, even though they know that the stocks are not good fundamental stocks that can appreciate in value.
So, when to sell then?
There are few different schools of thoughts on this. Based on the advice from the investments gurus, like Benjamin Graham, Warren Buffet and Philip Fisher, when you buy a stock, you need to make sure that you understand the companies that you are buying, and these are good fundamental stocks, which will provide good income and appreciate in value in long term.
Therefore, you will be treating your stock purchase as a business you bought, which is meant for long term. You should not be affected by any temporary price movement due to overall market volatility.
You will only consider selling the company if the growth of the company's intrinsic value falls below "satisfactory" level or you find out that a mistake was made in the original analysis as you grow more familiar to the business or industry.
However, if you find that your investment portfolio is highly concentrated on one single company, then you might want to consider diversifying your portfolio and lowering your risk.
Any single investment that is more than 10 per cent to 15 per cent of your portfolio value should be reconsidered no matter how solid the company performance or prospect is, suggested Pat Dorsey of Morningstar.
Last but not least, if you find that by selling the stock, you can invest the money in a better option, then that is a good reason to sell.
In summary, successful investing is highly dependent on your self-discipline, taking away the emotional factors and not going with the crowd. It should always be backed by sound investment principles.
Always remember there is no short cut in investment, only hard work and patience.
Securities Industry Development Corp, the leading capital markets education, training and information resource provider in Asean, is the training and development arm of the Securities Commission. It was established in 1994 and incorporated in 2007.
http://www.btimes.com.my/Current_News/BTIMES/articles/SIDC2/Article/index_html
Friday 16 January 2009
The Anxiety of Selling
THE ANXIETY OF SELLING
A vexing question facing investors during market sell-offs is whether to join the pack. For value investors, the answer is no, but the more pertinent question is when to sell.
Value investors set selling criteria at the time of purchase. Their attitude in buying is to select stocks that are least likely ever to trigger the criteria for selling.
But businesses change, and when they deteriorate, their shares should be sold, just as the owner of a business sometimes must decide to close down. When selecting stocks, value investors specify what deterioration means for purposes of selling. The logic is simple: The same factors used to select and avoid stocks are used to decide which stocks to sell and when.
A vexing question facing investors during market sell-offs is whether to join the pack. For value investors, the answer is no, but the more pertinent question is when to sell.
Value investors set selling criteria at the time of purchase. Their attitude in buying is to select stocks that are least likely ever to trigger the criteria for selling.
But businesses change, and when they deteriorate, their shares should be sold, just as the owner of a business sometimes must decide to close down. When selecting stocks, value investors specify what deterioration means for purposes of selling. The logic is simple: The same factors used to select and avoid stocks are used to decide which stocks to sell and when.
Sales are indicated when the key factors supporting an original buy are gone. Here is a summary of such factors:
(1) Internal:
- dubious management behaviour,
- vague disclosure or complex accounting,
- aggressively increased merger activity,
- dizzying executive compensation packages.
(2) External:
- intensifying new competition,
- disruptive technological onslaughts,
- deregulation,
- declining inventory and
- receivables turns.
(3) Economic:
- shrunken profit margins;
- declining returns on equity,
- assets, and investment;
- earnings erosion;
- debt increased aggressively in relation to equity;
- deterioration in current and quick ratios.
Value investors avoid selling when bad news is temporary. Single-quarter profit margin slippage should provoke questions, but not sales orders. If investigation shows deeper problems, then the condition might be permanent and selling indicated. Permanent deterioration requires more evidence.
When in doubt concerning where deterioration is temporary or permanent, value investing might include a hedging strategy. This would call for selling some but less than all shares held.
Value investors never sell solely due to falling prices. They require some evidence related to the declining intrinsic value of the business to warrant a revision in the hold-or-sell calculus. Stock price fluctuations are far too fickle to influence such an important decision.
In the case of a preset policy to sell when price reaches a certain high level, many value investors follow the same mixed strategy adhered to when unsure whether a development is permanent or temporary: selling some, but not all.
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