General Markets Talk
- Thread starter Jimmy_the_Gent
- Start date
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SM
Bigfooty Legend
Great session so far today!
Anyone brave enough to buy the iron ore miners this week?
I have nothing in that sector.
I have nothing in that sector.
- Apr 10, 2017
- 2,159
- 4,063
- AFL Club
- Hawthorn
- Other Teams
- Saints
Got this from the Bloomberg website tonight : https://www.bloomberg.com/news/arti...tter-after-fed-markets-wrap?srnd=premium-asia
"Chinese officials asked local governments to prepare for the embattled property developer’s downfall, Dow Jones Newswires reported on Thursday, even as Beijing injected more cash into the system and regulators instructed the company to avoid a near-term default."
- Sep 30, 2012
- 2,583
- 2,962
- AFL Club
- West Coast
- Other Teams
- Subiaco Lions, Ferrari, Minardi
Yep - they'll try to limit the damage or extend it out over a period of time. I'm adopting a cautious approach.
Anyone get on PNN the last couple of weeks?
That has gone through the roof.
That has gone through the roof.
- Sep 30, 2012
- 2,583
- 2,962
- AFL Club
- West Coast
- Other Teams
- Subiaco Lions, Ferrari, Minardi
Yeah watched that go nuts on Thursday / Friday. HNR has done well for me this week.
Announcement today
Is NWE undervalued?
Is NWE undervalued?
- Sep 30, 2012
- 2,583
- 2,962
- AFL Club
- West Coast
- Other Teams
- Subiaco Lions, Ferrari, Minardi
It might be but I think fossil fuel exploration and investment seems to be on the nose right now, especially versus Lithium / rare metals and battery tech which is where most people are putting their money.
- May 5, 2006
- 62,726
- 70,017
- AFL Club
- West Coast
Now for another episode of DaRick's Stock Market Misadventures:
Disclaimer: I have underperformed the market over the last week, but I'm not particularly concerned, for reasons I'll outline below. And no, nobody has to take me seriously.
1) The Federal Reserve has decided to 'taper' or 'tighten'. This is a euphemism for removing stimulus. Given that consumer confidence in the US is crashing already, this will worsen any US economic downturn (on the cards already) given that people will be even less enthusiastic about spending, and will make defensive stocks like healthcare/consumer staples/utilities/telcos even more attractive.
2) There now exists a global energy panic. This mostly doesn't affect Australia because we export the likes of LNG and coal, but we do import oil. Ordovician - I've changed my mind and will say that going forward, stagflation is possible in Australia, albeit it will be relatively mild and short-term. Mild because we don't have the energy issues Europe and the US do, and short-term because IMO oil prices will crash in 3-7 months - just like in 2008. It really depends on when 1) we enter into a downturn and 2) the government decides to release stimulus, because ATM I'm not sure we're in a situation where too much money is chasing too few goods. Knowing the LNP, they'll dither on releasing stimulus until the situation looks really dire, by which time we'd be facing disinflation/deflation, not stagflation. So in Australia, I'd say that stagflation is unlikely, but not off the table.
In Europe, it is significantly more likely over the short-term because their crisis is more acute, and the European Central Bank has not reduced stimulus - noting (IMO correctly) that inflation is transitory, which may encourage them to increase stimulus as said energy crisis affects their economy and the upcoming winter increases demand for energy. As I've explained before, energy shocks tend to lead to economic downturns because most other businesses receive less money.
The US removing stimulus, which along with their greater energy reserves compared to Europe IMO makes disinflation/deflation more likely for them compared to stagflation despite their energy crisis being more acute than ours (also less of their country requires energy during winter). This is especially since high (transitory) consumer prices keeps yields lower (to encourage more spending from reticent consumers), and low yields are associated with disinflation/deflation rather than stagflation.
3) I've been underperforming the market because 1) there was always going to be a short-term increase in yields (as too many people buy into the mania caused by certain cyclicals, especially commodities and energy, which then increases inflation fears without increasing fears of a recession due to optimism bias, thus hurting defensives) and 2) this increase has been exacerbated by the global energy shock.
4) I've said that oil prices will likely crash in 3-7 months because how long this energy crisis goes on depends on the severity of the US/European winter. Obviously a more severe winter prolongs demand and delays any crash. What role La Nina will play is anyone's guess - its effects on Europe are unclear, and its effects on the US are mixed. What may not help is that the cold mostly affects Canada, which is a known energy/commodity exporter. If Canada requires more energy for domestic consumption, it would worsen an energy crisis in the US/EU (its two main export partners).
5) As soon as the energy crisis ends, thus eliminating any prospect of stagflation, expect a crash in inflation and yields to occur not long after. Emerging market, US, EU, AUS and Japanese stocks will all tumble since 1) downturns and stock market crashes are strongly correlated, 2) EM/EU/AUS/JPN are all affected by a Chinese slowdown given trade links and 3) EM/EU/AUS/JPN are as a whole cyclical, rather than defensive economies. By tumble, imagine the S&P 500 falling by 20%-30%
6) Despite the Swiss stock market's recent downturn, I've made a special case for Swiss equities, having invested in the EWL ETF, because 1) they are dominated by healthcare/consumer staples, 2) they're quite stable especially since 3) the CHF is a safe-haven currency and should hold its own against any USD rises, preserving EWL's value somewhat (even though I've partially hedged it to the USD).
7) Regardless of how much stagflation we see before the inevitable disinflation/deflation, investing in the types of stocks that I've listed, plus quality and min vol stocks, should lead to outperformance relative to the market. Cyclical stocks in general IMO should be avoided, but particularly industrials (recession reduces demand + high USD hurts US exports), financials (low interest rates + greater risk of bank runs/insolvency), consumer discretionary (obvious), commodities (hedge against inflation not deflation) and REIT (very volatile and like commodities, are designed to hedge against rising yields and inflation). Investing in infrastructure makes sense because it is mostly utilities, but I wouldn't place too much of your portfolio there because substantial amounts are also industrials/energy stocks (I've placed 7.5% of my portfolio there).
8) I'm long USD against EM FX/AUD/EURO and long GBP against AUD. I don't expect to gain that much from the last trade, but the GBP is more stable than the EURO and is not the commodity currency that the AUD is.
9) I've sold MOAT and some of IOO/GOAT/WRLD/VMIN and bought more of HLTH/IXJ/IXI/ZYUS.
10) I have 5% in asset allocation funds (roughly 50/50 stocks and bonds), 5% in currency (mostly USD), 32.5% in investment-grade bonds (worldwide, with quite a few AUS Treasury bonds, and almost no inflation-linked bonds), 2.5% in junk bonds, 2.5% in REIT, 7.5% in infrastructure, 2.5% in emerging markets, 35% in international equities and 7.5% in the ASX. So that's slightly more conservative than a 60/40 blend (60% stocks, 40% bonds), which for a younger person is quite conservative - in better times I'd be going 80/20 or even 85/15.
What about after the global downturn?
1) I'll retain my currency positions.
2) Retain my positions in quality ETF's because I expect moderate outperformance from them.
3) Invest in more TIPS (US inflation-linked treasuries) and sell off many of my non-inflation linked US bonds, replacing them with short-term US bonds if needed to deal with rising interest rates.
4) Assuming that the USD remains strong, I'd look at investing in 1) companies that export heavily to the US and 2) US companies that derive their income domestically. I assume growth and inflation will rise at least somewhat, so I'd examine the IT sector more broadly, being wary of US IT multinationals. I'd also be selective about the financials I'd invest in, because rising inflation does dilute the value of a bank's main asset - money. Warren Buffet likes Bank of America (BAC) and I don't mind PNC. A US-led recovery and rising inflation may compel the Fed to increase short-term interest rates, so brokers like SCHW would benefit.
Non-multinational consumer discretionary stores would also benefit, with the most notable one being TGT. They'd find it cheaper to import goods and benefit from their revenue coming from domestic sources. I plan to keep my positions in KR and WMT for that reason. They may both be consumer staples and the latter is technically a multinational, but both derive their income predominantly from the US. Biotech does have a promising future, so unless I have a reason to sell I'd hold on to VRTX and HZNP.
5) I'd sell many of my healthcare/consumer staples investments (because defensives will become increasingly redundant as the world recovers economically), and I'd review my infrastructure investments. Infrastructure is more effective at hedging against inflation than against rising interest rates (though they're not too badly affected by the latter).
EDIT: In the US, during an economic recovery, I'd expect small/mid-cap stocks (e.g. Russell 2000) to outperform large-cap stocks, not just because consumers have more spending power, but because they feel more comfortable making speculative investments. Nonetheless, you should see gains among stocks in general, so with maybe the exception of commodity companies (because a strong USD holds them down), and taking into account expected underperformance from US multinationals and most financials/defensives, most people investing in the US should do fine - just don't hedge your investments into AUD.
But this is all idle speculation.
Disclaimer: I have underperformed the market over the last week, but I'm not particularly concerned, for reasons I'll outline below. And no, nobody has to take me seriously.
1) The Federal Reserve has decided to 'taper' or 'tighten'. This is a euphemism for removing stimulus. Given that consumer confidence in the US is crashing already, this will worsen any US economic downturn (on the cards already) given that people will be even less enthusiastic about spending, and will make defensive stocks like healthcare/consumer staples/utilities/telcos even more attractive.
2) There now exists a global energy panic. This mostly doesn't affect Australia because we export the likes of LNG and coal, but we do import oil. Ordovician - I've changed my mind and will say that going forward, stagflation is possible in Australia, albeit it will be relatively mild and short-term. Mild because we don't have the energy issues Europe and the US do, and short-term because IMO oil prices will crash in 3-7 months - just like in 2008. It really depends on when 1) we enter into a downturn and 2) the government decides to release stimulus, because ATM I'm not sure we're in a situation where too much money is chasing too few goods. Knowing the LNP, they'll dither on releasing stimulus until the situation looks really dire, by which time we'd be facing disinflation/deflation, not stagflation. So in Australia, I'd say that stagflation is unlikely, but not off the table.
In Europe, it is significantly more likely over the short-term because their crisis is more acute, and the European Central Bank has not reduced stimulus - noting (IMO correctly) that inflation is transitory, which may encourage them to increase stimulus as said energy crisis affects their economy and the upcoming winter increases demand for energy. As I've explained before, energy shocks tend to lead to economic downturns because most other businesses receive less money.
The US removing stimulus, which along with their greater energy reserves compared to Europe IMO makes disinflation/deflation more likely for them compared to stagflation despite their energy crisis being more acute than ours (also less of their country requires energy during winter). This is especially since high (transitory) consumer prices keeps yields lower (to encourage more spending from reticent consumers), and low yields are associated with disinflation/deflation rather than stagflation.
3) I've been underperforming the market because 1) there was always going to be a short-term increase in yields (as too many people buy into the mania caused by certain cyclicals, especially commodities and energy, which then increases inflation fears without increasing fears of a recession due to optimism bias, thus hurting defensives) and 2) this increase has been exacerbated by the global energy shock.
4) I've said that oil prices will likely crash in 3-7 months because how long this energy crisis goes on depends on the severity of the US/European winter. Obviously a more severe winter prolongs demand and delays any crash. What role La Nina will play is anyone's guess - its effects on Europe are unclear, and its effects on the US are mixed. What may not help is that the cold mostly affects Canada, which is a known energy/commodity exporter. If Canada requires more energy for domestic consumption, it would worsen an energy crisis in the US/EU (its two main export partners).
5) As soon as the energy crisis ends, thus eliminating any prospect of stagflation, expect a crash in inflation and yields to occur not long after. Emerging market, US, EU, AUS and Japanese stocks will all tumble since 1) downturns and stock market crashes are strongly correlated, 2) EM/EU/AUS/JPN are all affected by a Chinese slowdown given trade links and 3) EM/EU/AUS/JPN are as a whole cyclical, rather than defensive economies. By tumble, imagine the S&P 500 falling by 20%-30%
6) Despite the Swiss stock market's recent downturn, I've made a special case for Swiss equities, having invested in the EWL ETF, because 1) they are dominated by healthcare/consumer staples, 2) they're quite stable especially since 3) the CHF is a safe-haven currency and should hold its own against any USD rises, preserving EWL's value somewhat (even though I've partially hedged it to the USD).
7) Regardless of how much stagflation we see before the inevitable disinflation/deflation, investing in the types of stocks that I've listed, plus quality and min vol stocks, should lead to outperformance relative to the market. Cyclical stocks in general IMO should be avoided, but particularly industrials (recession reduces demand + high USD hurts US exports), financials (low interest rates + greater risk of bank runs/insolvency), consumer discretionary (obvious), commodities (hedge against inflation not deflation) and REIT (very volatile and like commodities, are designed to hedge against rising yields and inflation). Investing in infrastructure makes sense because it is mostly utilities, but I wouldn't place too much of your portfolio there because substantial amounts are also industrials/energy stocks (I've placed 7.5% of my portfolio there).
8) I'm long USD against EM FX/AUD/EURO and long GBP against AUD. I don't expect to gain that much from the last trade, but the GBP is more stable than the EURO and is not the commodity currency that the AUD is.
9) I've sold MOAT and some of IOO/GOAT/WRLD/VMIN and bought more of HLTH/IXJ/IXI/ZYUS.
10) I have 5% in asset allocation funds (roughly 50/50 stocks and bonds), 5% in currency (mostly USD), 32.5% in investment-grade bonds (worldwide, with quite a few AUS Treasury bonds, and almost no inflation-linked bonds), 2.5% in junk bonds, 2.5% in REIT, 7.5% in infrastructure, 2.5% in emerging markets, 35% in international equities and 7.5% in the ASX. So that's slightly more conservative than a 60/40 blend (60% stocks, 40% bonds), which for a younger person is quite conservative - in better times I'd be going 80/20 or even 85/15.
What about after the global downturn?
1) I'll retain my currency positions.
2) Retain my positions in quality ETF's because I expect moderate outperformance from them.
3) Invest in more TIPS (US inflation-linked treasuries) and sell off many of my non-inflation linked US bonds, replacing them with short-term US bonds if needed to deal with rising interest rates.
4) Assuming that the USD remains strong, I'd look at investing in 1) companies that export heavily to the US and 2) US companies that derive their income domestically. I assume growth and inflation will rise at least somewhat, so I'd examine the IT sector more broadly, being wary of US IT multinationals. I'd also be selective about the financials I'd invest in, because rising inflation does dilute the value of a bank's main asset - money. Warren Buffet likes Bank of America (BAC) and I don't mind PNC. A US-led recovery and rising inflation may compel the Fed to increase short-term interest rates, so brokers like SCHW would benefit.
Non-multinational consumer discretionary stores would also benefit, with the most notable one being TGT. They'd find it cheaper to import goods and benefit from their revenue coming from domestic sources. I plan to keep my positions in KR and WMT for that reason. They may both be consumer staples and the latter is technically a multinational, but both derive their income predominantly from the US. Biotech does have a promising future, so unless I have a reason to sell I'd hold on to VRTX and HZNP.
5) I'd sell many of my healthcare/consumer staples investments (because defensives will become increasingly redundant as the world recovers economically), and I'd review my infrastructure investments. Infrastructure is more effective at hedging against inflation than against rising interest rates (though they're not too badly affected by the latter).
EDIT: In the US, during an economic recovery, I'd expect small/mid-cap stocks (e.g. Russell 2000) to outperform large-cap stocks, not just because consumers have more spending power, but because they feel more comfortable making speculative investments. Nonetheless, you should see gains among stocks in general, so with maybe the exception of commodity companies (because a strong USD holds them down), and taking into account expected underperformance from US multinationals and most financials/defensives, most people investing in the US should do fine - just don't hedge your investments into AUD.
But this is all idle speculation.
Last edited:
- Mar 27, 2018
- 7,222
- 18,903
- AFL Club
- Collingwood
- Other Teams
- Cleveland Browns, Tony Ferguson
must say that i am enjoying this energy run - a day like today was long over due.
Having reviewed my portfolios, I did actually outperform but not by as much as I would have liked (losing around 1% compared to 1.5% for the ASX). My quality and healthcare investments performed particularly poorly (with HTLH - a quality growth healthcare ETF - losing 3.38%!). Consumer staples didn't fare that much better.
The market is far from rational because human beings aren't particularly rational, but right now the market is behaving as if we're going through anti-stagflation (falling inflation and rising growth), with energy outperforming (but not commodities because China) and the AUD holding up, but quality/healthcare/staples bombing. I put that down to rising yields (which fuels speculation RE higher inflation in the absence of 1) actual, lasting inflation and 2) official interest rate rises, thus harming defensives) plus markets failing to register the coming impact of the Chinese slowdown on the economic recovery (i.e. deleterious) currently enjoyed by the EU, EM's and Japan. Plus it's not clear to me that the global market has accounted for the coming US downturn either, while IMO it's only beginning to account for the AUS downturn (AUS bond yields are still rising).
Needless to say, I don't expect this state of affairs to last long.
EDIT: I've portrayed rising yields and rising official interest rates as the same thing, which they're not. One tends to precipitate the other.
The market is far from rational because human beings aren't particularly rational, but right now the market is behaving as if we're going through anti-stagflation (falling inflation and rising growth), with energy outperforming (but not commodities because China) and the AUD holding up, but quality/healthcare/staples bombing. I put that down to rising yields (which fuels speculation RE higher inflation in the absence of 1) actual, lasting inflation and 2) official interest rate rises, thus harming defensives) plus markets failing to register the coming impact of the Chinese slowdown on the economic recovery (i.e. deleterious) currently enjoyed by the EU, EM's and Japan. Plus it's not clear to me that the global market has accounted for the coming US downturn either, while IMO it's only beginning to account for the AUS downturn (AUS bond yields are still rising).
Needless to say, I don't expect this state of affairs to last long.
EDIT: I've portrayed rising yields and rising official interest rates as the same thing, which they're not. One tends to precipitate the other.
Last edited:
Hi I'm Zantrene, and I kill 50% of melanoma cancers. I'm also years ahead of the competition in regards to FTO inhibition and melanoma is the minor end of the market I can be applied to.
Also suspecting two more just as good updates today, one for each of the other two pillars.
Now for another episode of DaRick's Stock Market Misadventures:
Disclaimer: I outperformed the ASX yesterday but underperformed it today, so do take my words with as much salt as your diet permits. That said, 3 of my 4 USD shares outperformed the S&P 500, so there you go.
1) I'll start by saying that I've slightly modified my approach to 'market timing' when buying assets to the following - using Financial Times Markets data (red are amendments):
- Price is below linear regression line
- Price is close to the bottom of or below the price channel
- The dark green MACD line is in negative territory (below 0)
- Momentum is around or even below 100 - but if you're in a bear market, be wary of an uptick in momentum, even below 100, because you could be experiencing a bear market rally
- RE DMI, the light blue line is above the orange line, and the dark blue line is around 15 or below - if the DMI rises from 15-20 or even 30, the stock may become more or less underpriced, depending on the state of the market. If the dark blue line remains at 15, then the price will remain roughly as is
- The RSI (Relative Strength Index) indicates that the stock is oversold (green zone) or close to it
- The Stochastic indicates that the stock is oversold (green zone) or close to it
I've decided to include the RSI as a measurement because I've since learned that the RSI is better for volatile markets with no clear bullish or bearish trend, but Stochastic is better for markets clearly trending bearish or bullish.
The situation we're in is a tad unusual - the market is unusually volatile but in my opinion global stocks (particularly the ASX and EM's due to commodities) are broadly trending in a bearish direction. So I suggest using both the RSI and Stochastic and averaging out the numbers.
Hope that's helpful.
2) What I think we're seeing RE the ASX (and to varying extents other markets) is a bear market rally. Observe the S&P/ASX 300 (XKO):
Notice how there's been a general decline over the past month, but with periodic rallies as investors try to BTFD?
Sadly, I think they're mistaken. The ASX is far too driven by cyclicals, especially commodities, to stop its decline, and commodities perform really poorly during downturns. Combine that with a likely recession, and I'd say that this decline becomes a crash. Not exactly sure when, but I'd say it would occur in 3-7 months as the figures released for Q3 and Q4 reveal the damage caused by a lack of timely stimulus and varying degrees of lockdowns.
What really bothers me is that these people, the vast majority of whom are well-meaning but don't really know any better due to a lack of experience, knowledge and/or time, are being led down the garden path, and eventually off the metaphorical financial pier, by pied piper journalists (warning: paywall) encouraging people to invest in iron ore companies and small caps with no lasting competitive advantage during a commodity-led market downturn. If I can stop at least one person from following their advice, all the better.
I find that stock market crashes go one of two ways. They do sometimes collapse overnight ala March 2020, but more often what you see is a gradual bearish trend, with periodic bear market rallies, followed by a rapid crash. In the US, that happened with the dot-com bust, the GFC and even during that China-Trump trade war. I'd say that what we're seeing right now fits the latter category.
I find it analogous to a dying patient - sometimes people pass away very quickly, but they're more likely to slowly lose their health before just suddenly passing. To a lot of people, that tragedy would look quite sudden, but when you look closer you'll find that wasn't necessarily the case. Same thing here.
I am a bit of a hypocrite in this regard - I had too much invested in EWL for my liking, so I incurred a capital loss and bought less back at a lower price.
My general approach to bear market rallies:
1) Do NOT get suckered into purchasing new cyclical stocks, especially commodities.
2) I'd avoid the ASX entirely, but if you can't for some reason, only purchase defensive stocks (healthcare/consumer staples/telcos/utilities) under the conditions I've mentioned above, and make sure they're not considered volatile stocks - quality defensives (e.g. CSL) are better but are rare in the ASX.
3) Keep a min/max amount for each investment you purchase (e.g. within a standard deviation or whatnot), so you don't waste brokerage fees buying every time there's a dip or selling every time there's a rally - e.g. for a $500 investment, a min could be $450 and a max could be $550, or some such. For example, I only topped up on HLTH because it fell below my allocated threshold.
EDIT: As per David Swensen, this prevents your portfolio from becoming unbalanced, the implications of which include having far too much in bonds or stocks than you intended, so you no longer have the desired risk profile for your portfolio.
4) One useful trick for avoiding getting totally seduced by bear market rallies is keeping some portion of your investments in an index fund (e.g. Vanguard). Index funds are a PITA to deposit or withdraw money in, so I don't maintain many during these volatile times, but they are still useful, especially when you're building up a portfolio of 'core' investments that you never want to completely sell under any circumstances.
5) One problem with 'market timing' is that it's purely a tactical ploy; you can execute it correctly, but you still wind up losing the war because you're in a bear market with intermittent rallies. 'Market timing' must be viewed in that context.
Now let's see what tonight brings on Wall Street, shall we?
EDIT: Edited technique for FT to match that of CMC.
Disclaimer: I outperformed the ASX yesterday but underperformed it today, so do take my words with as much salt as your diet permits. That said, 3 of my 4 USD shares outperformed the S&P 500, so there you go.
1) I'll start by saying that I've slightly modified my approach to 'market timing' when buying assets to the following - using Financial Times Markets data (red are amendments):
- Price is below linear regression line
- Price is close to the bottom of or below the price channel
- The dark green MACD line is in negative territory (below 0)
- Momentum is around or even below 100 - but if you're in a bear market, be wary of an uptick in momentum, even below 100, because you could be experiencing a bear market rally
- RE DMI, the light blue line is above the orange line, and the dark blue line is around 15 or below - if the DMI rises from 15-20 or even 30, the stock may become more or less underpriced, depending on the state of the market. If the dark blue line remains at 15, then the price will remain roughly as is
- The RSI (Relative Strength Index) indicates that the stock is oversold (green zone) or close to it
- The Stochastic indicates that the stock is oversold (green zone) or close to it
I've decided to include the RSI as a measurement because I've since learned that the RSI is better for volatile markets with no clear bullish or bearish trend, but Stochastic is better for markets clearly trending bearish or bullish.
The situation we're in is a tad unusual - the market is unusually volatile but in my opinion global stocks (particularly the ASX and EM's due to commodities) are broadly trending in a bearish direction. So I suggest using both the RSI and Stochastic and averaging out the numbers.
Hope that's helpful.
2) What I think we're seeing RE the ASX (and to varying extents other markets) is a bear market rally. Observe the S&P/ASX 300 (XKO):
Notice how there's been a general decline over the past month, but with periodic rallies as investors try to BTFD?
Sadly, I think they're mistaken. The ASX is far too driven by cyclicals, especially commodities, to stop its decline, and commodities perform really poorly during downturns. Combine that with a likely recession, and I'd say that this decline becomes a crash. Not exactly sure when, but I'd say it would occur in 3-7 months as the figures released for Q3 and Q4 reveal the damage caused by a lack of timely stimulus and varying degrees of lockdowns.
What really bothers me is that these people, the vast majority of whom are well-meaning but don't really know any better due to a lack of experience, knowledge and/or time, are being led down the garden path, and eventually off the metaphorical financial pier, by pied piper journalists (warning: paywall) encouraging people to invest in iron ore companies and small caps with no lasting competitive advantage during a commodity-led market downturn. If I can stop at least one person from following their advice, all the better.
I find that stock market crashes go one of two ways. They do sometimes collapse overnight ala March 2020, but more often what you see is a gradual bearish trend, with periodic bear market rallies, followed by a rapid crash. In the US, that happened with the dot-com bust, the GFC and even during that China-Trump trade war. I'd say that what we're seeing right now fits the latter category.
I find it analogous to a dying patient - sometimes people pass away very quickly, but they're more likely to slowly lose their health before just suddenly passing. To a lot of people, that tragedy would look quite sudden, but when you look closer you'll find that wasn't necessarily the case. Same thing here.
I am a bit of a hypocrite in this regard - I had too much invested in EWL for my liking, so I incurred a capital loss and bought less back at a lower price.
My general approach to bear market rallies:
1) Do NOT get suckered into purchasing new cyclical stocks, especially commodities.
2) I'd avoid the ASX entirely, but if you can't for some reason, only purchase defensive stocks (healthcare/consumer staples/telcos/utilities) under the conditions I've mentioned above, and make sure they're not considered volatile stocks - quality defensives (e.g. CSL) are better but are rare in the ASX.
3) Keep a min/max amount for each investment you purchase (e.g. within a standard deviation or whatnot), so you don't waste brokerage fees buying every time there's a dip or selling every time there's a rally - e.g. for a $500 investment, a min could be $450 and a max could be $550, or some such. For example, I only topped up on HLTH because it fell below my allocated threshold.
EDIT: As per David Swensen, this prevents your portfolio from becoming unbalanced, the implications of which include having far too much in bonds or stocks than you intended, so you no longer have the desired risk profile for your portfolio.
4) One useful trick for avoiding getting totally seduced by bear market rallies is keeping some portion of your investments in an index fund (e.g. Vanguard). Index funds are a PITA to deposit or withdraw money in, so I don't maintain many during these volatile times, but they are still useful, especially when you're building up a portfolio of 'core' investments that you never want to completely sell under any circumstances.
5) One problem with 'market timing' is that it's purely a tactical ploy; you can execute it correctly, but you still wind up losing the war because you're in a bear market with intermittent rallies. 'Market timing' must be viewed in that context.
Now let's see what tonight brings on Wall Street, shall we?
EDIT: Edited technique for FT to match that of CMC.
Last edited:
I'm sorry for providing unsolicited advice, but I'd say none - let the downturn play itself out over 3-7 months (when Q4 economic figures are released and energy goes bust).
Also note that cheap mining companies are value traps because a mining company's price reflects the relevant commodity's price. The lower the price, the less demand you'll see.
You really have to understand macro trends to know when to invest, and then devise a 'buying/selling' system for timing the market (EDIT: This is a tactical ploy only and is not of much use in a broader bear market - 'timing the market' during a bear market is IMO akin to winning the battle but losing the war). For instance, if data suggests that China or Japan will be building new infrastructure as part of their recovery from their slowdown (IMO unlikely given they have too many unoccupied buildings in China), then invest in FMG. Not for long though - it is well run, but lacks what Warren Buffet would call a moat, a sustainable competitive advantage over its competitors that should keep it above water when things turn bad.
(FTR, I think that FMG is a well-run company, just not one I'd invest in due to lack of aforementioned moat. Tactical, short-term investing with competent non-moat companies can work, but be careful of brokerage fees).
Disclaimer: My 'buying/selling' system is not perfect, but it's worked reasonably well for me so far provided I've understood 1) the broader macroeconomic conditions (we're in a bear market with intermittent rallies) and 2) you should purchase/sell if your investment is below/above a certain financial threshold.
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Should be a good day to do a little bit of shopping.
VAS at a 3-4% discount.
Ex-dividend day - always good for a shop, and I expect the same will apply on Wall Street too.
I've placed $50 into ZYUS because it fell below my threshold, for example.
- Sep 30, 2012
- 2,583
- 2,962
- AFL Club
- West Coast
- Other Teams
- Subiaco Lions, Ferrari, Minardi
Drop of 2.22% on the ASX earlier today with Financials getting hit hard.
I wonder how much of these losses was due to Wall Street and how much was due to companies paying dividends?
No doubt the same question can be asked after the S&P 500 underperforms today.
No doubt the same question can be asked after the S&P 500 underperforms today.
Although the MD unloading half his stock announced on a Friday arvo last week isn't a great look did buy some NXT.
