# Buy in gloom, Sell in boom



## Ken (21 November 2007)

When there is fear amongst markets, it is time to sit back, look at value stocks, and buy them with your ears pinned back.

Here are the facts.


The Australian stocks are making record profit.

Suncorp just cracked a $1 billion profit

Nab cracked an all time high profit

BHP is making more money than it knows what to do with

Woolworths is growing at a rediculous rate.

What not to do!

DO NOT LISTEN TO COMMENTARY THAT THE MARKET IS A FALLING KNIFE, AND IT IS GOING TO TANK FROM MUPPET FORUM POSTERS.

What to do!

Speak to your financial advisor.  Learn how to value a company, and its future earnings pershare. take into account risks in that sector it operates in, increase costs? demand/supply?  economic factors.


Then make informed decisions on where you want your money to go.

The market is pulling back after a run from 5400 to 6700 on the all ords from August 10.  that is less than 3 months ago.  The market is going to be volatile.

There are no right answers, but there are companies out there trading on very good yields. No to me dividends is one way of seeing whether a stock is undervalued or not.

The following companies spring to mind that are paying healthy dividends.

MIG 6.8%
AFG 6.3 %
SUN 5.4%
AIO  5.5 %
RRT 14% - thats right 11 cents per share......  
CVC 6%
TAH 6%
BOL 3.5 %
ZFX 9%


companies are still making big bucks.  they are not stock selections, but just a basic guide to the fact you can still find stocks with great dividends.

In the 1987 crash stocks had dividends around 2-3%

not the case today.

The people telling you to sell today, will be back tommorow to buy your shares.


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## reece55 (21 November 2007)

*Re: buy in gloom sell in boom*

Ken
I'm not going to say the market is doomed forever and a day and you are right in saying that in times of fear, the best opportunities arise.....

But determining that the stocks we have atm are cheap because they have a higher yield than 1987 stocks is a silly comparison...

Going through the list, at least 2 make me smile -

AFG - What is the use in a 7% yield if their collateral is useless and they are geared up to the eyeballs;

MIG  -Ummm....... pure paper rubbish, only solvent because Mac Bank tells super funds to continue to eat their junk food...

It always baffles me why Aussies love yield - in my opinion, if the Company I invest in achieves a growth rate internally that exceeds my required rate of return, why would I want them to give the funds back to me by a distribution/dividend.....

The other point I would make is that markets don't follow underlying fundamentals and if hedge funds/instos need cash (and the yen unwinding certainly illustrates that they do), then the fundamentals don't matter......

Cheers


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## Ken (21 November 2007)

*Re: buy in gloom sell in boom*

They were a bunch of stocks i picked  its not what i hold.

I too agree growth stocks offer the best returns by far. but some people invest for yield and when you see stocks trading with high yields it does say they are oversold to some extent.  

If BHP was trading at a 5% yield you would probly say there is less growth factored in....  but thats another story.


I just think with the way media, and the public forums perceive the market your almost better off waiting 2 weeks and doing the opposite to what everyone is thinking sometimes.


When everyone is thinking the same thing, it gennerally turns..... the opposite way especially in a bull market.

markets are oversold and over bought. 

where we are at the moment, i think we are verging on panic stations again, with a lot of stocks falling well off there highs. 

it all depends on strategy. when you buy an asset you buy it with the intention not to sell it for a certain time.. as tax is a killer.

my main theory is not to panic.....


the money you lose is generally less than the profits you cut in the long term.


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## ROE (21 November 2007)

*Re: buy in gloom sell in boom*



Ken said:


> They were a bunch of stocks i picked  its not what i hold.
> 
> I too agree growth stocks offer the best returns by far. but some people invest for yield and when you see stocks trading with high yields it does say they are oversold to some extent.
> 
> ...




Dividend yield doesn't indicate it's a good business and buying a stock based on yield thinking it's cheap is a trap and you could lose your capital.

Dividend is not guarantee, it's at the discretion of the board and directors.
look at TLS dividend, it is healthy but they borrow some of the money to maintain their high dividend yields but not from true earning so they go deeper into debt every year if they keep that up... Company that fund their dividend and expenditure from debt is usually a bad business, and like reece I wouldnt touch any of fund manage by MacBank.. 
Their structure is so complicated you need a PhD in physics to work out the logic


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## Ken (21 November 2007)

*Re: buy in gloom sell in boom*

interesting.

well how do we look at forward looking EPS stocks like 

PEM
BHP
RIO
OXR
ZFX

mining stocks that appear cheap.....

for me PEM is the most undervalued looking forward....


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## Rainmaker2000 (21 November 2007)

*Re: buy in gloom sell in boom*

Ken, I got pretty much no sense from your post.....other than some cliches apparently we are going through some uncertain times, just like, well always and that dividends are a good way to identify value and long term potential.....

Well, I might agree the index is overvalued but then that's just BHP and all the other big weightings........big deal, we can choose to not own any of them........

As for the dividend theory and the stocks you listed.......for many of these stocks, doesn't the high yield just show they have minimal capital requirements and minimal growth avenues.......and then you got ZFX which is a cyclical which everyone thinks is at the top.....It would be pretty brave to buy ZFX now as a 'value call' since it listed about 5 years ago for $1.80......the ultimate cyclical born out of the carcus of involvent Pasminco

Dividend yeilds are not shortcuts for actually doing some work and valuing a company......What is the relevance anyway of last years dividend, wouldn't you want a list of next years big payers or how about big EPS's.....come to think of it isn't EPS more important since that's where the Divs come from?....Don't mean to be blunt but Aussies care too much about yeild which plays right into Macquarie's and other financial engineers hands when they create 'products'.............It's not residential property after all


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## dhukka (21 November 2007)

*Re: buy in gloom sell in boom*



reece55 said:


> It always baffles me why Aussies love yield - in my opinion, if the Company I invest in achieves a growth rate internally that exceeds my required rate of return, why would I want them to give the funds back to me by a distribution/dividend.....




Exactly. Investors that demand yield on businesses that achieve high returns on capital are fleecing themselves. It's simple capital management yet it's amazing how many corporate boards lack understanding in this area.  

Ken, with all due respect, if you are taking advice from a financial advisor it's time to get a new one.


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## wayneL (22 November 2007)

*Re: buy in gloom sell in boom*

*buy in gloom, sell in boom*

Of course it depends what you define as gloom. IMO we are just in a pullback from a huge boom.

*If* this is gloom, then it's only just the start of it.


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## Flying Fish (22 November 2007)

I'll wait for the doom lol a few more months to go I reckon


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## macca (22 November 2007)

I am with Wayne on this one.

It may be getting a little overcast, but it is not anywhere near gloom yet and we have another 800 points to go to hit DOOM 

This is but a mild correction which may herald good old Santy Claus BUT I don't think next year is going to be much good 

Just because a stock may look good by one criteria doesn't exclude it from a beating if the market tanks.

I don't think we will be seeing 7000 any time soon


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## wayneL (22 November 2007)

Well the credit market continues to deteriorate.

Northern Wreck and Para-gone are getting slaughtered on the LSE, and now it seem Asia has been infected.

Like I said a couple of months ago, there are plenty of corpses that have yet to float to the surface.

http://www.telegraph.co.uk/money/ma...VCBQWIV0?xml=/money/2007/11/21/bcnasia121.xml



> *Credit "heart attack" engulfs China and Korea
> *
> By Ambrose Evans-Pritchard, International Business Editor
> Last Updated: 6:57pm GMT 21/11/2007
> ...


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## dr cloe (22 November 2007)

Well, let the corpses surface...because the more that will surface the more investors will get used to it AND then at some stage the market will be ready for an upward move.

About 15-20 years ago a murder was head lines for newspapers...not anymore
no value (except when there is celebrities involved).
Now a days you need stronger things to tease the readers....

Just an oppinion from nobody.....


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## mayk (22 November 2007)

I think Ken is right, if you want to buy a stock and you are following it for some time, it might be a good time to buy (next two weeks). Most of the mining stocks are getting hammered and I will love to buy them, but I do not have much cash right now. 

I will like to accumulate the following stocks , maybe other people can identify some undervalued stocks..

*GBG* ( currenttly 1.25 any follower of this stock will know what it is worth and how cheap it is right now..)
*SDL* ( with GoldenSachs buy recommendation this stock will now not go beyond 50c in the short term. A huge potential stock ( high risk though)
*BHP* ( around $40 it is a steal( might get to 37-39 if we see huge red DOW in coming days), according to some pridictions it can hit $50 till Jan apart from dividend story)


each of these stocks have there own threads with technical and fundamental analysis , go through them and also DYOR.


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## Out Too Soon (22 November 2007)

Things look even gloomier today which means if you've got spare cash it's time for a spending spreeeee!
Timing is everything, I already had my spending spree, if I waited 'til today it would be even better.
So Ken, yes, you're dead right & even righter if you started this post today instead of yesty.


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## Ken (22 November 2007)

I guess if i posted this in 1987 I could be writing a book about....

Buy top companies like banks now.... everything is falling... buy buy buy and 20 years later I am a genius....

Everyone has time on their hands. Its just how you want to spend that time...

Wouldnt you feel like a dick if you sold BHP at $6 a share because it dropped from $8.... no $40....  


If you have been holding stocks for 5 years this means nothing... if your just entering the market.  Then i guess it feels a little different for some.


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## wayneL (22 November 2007)

Ken said:


> I guess if i posted this in 1987 I could be writing a book about....
> 
> Buy top companies like banks now.... everything is falling... buy buy buy and 20 years later I am a genius....
> 
> ...




Depends how you do this. The picture is different for each type of trader/investor.

Buy and holder with 20 years + till retirement, sure. But a trader who buys groceries with his/her profit must think a bit differently.


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## rederob (22 November 2007)

*Re: buy in gloom sell in boom*



wayneL said:


> *buy in gloom, sell in boom*
> 
> Of course it depends what you define as gloom. IMO we are just in a pullback from a huge boom.
> 
> *If* this is gloom, then it's only just the start of it.



I have never been more into cash.
And I will be cashing out more on any "bounce".
Only going to hold goldies and energy (and I draw a long bow to keep BHP in this group) - plus a few shares that are paid for from dividends: The rest are "for sale".
When there is a shift back to commodities I will see where (if there are any) bargains to be had.
Otherwise will sit back and wait this one out for now.


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## Rainmaker2000 (23 November 2007)

I think we are getting ahead of ourselves, we are not even near gloom or a bear market yet.....most of my large holdings went up yesterday, which is not a big tick for me, it shows a major correction has not even started........cause when one hits, it washes across everything.......there is always volatility as we get closer to the top of the boom...specially in companies without assets like banks...December and end of November could be a bloodbath if there are further major scalps of the liquidity crisis


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## Uncle Festivus (23 November 2007)

*Re: buy in gloom sell in boom*



rederob said:


> I have never been more into cash.
> And I will be cashing out more on any "bounce".
> Only going to hold goldies and energy (and I draw a long bow to keep BHP in this group) - plus a few shares that are paid for from dividends: The rest are "for sale".
> When there is a shift back to commodities I will see where (if there are any) bargains to be had.
> Otherwise will sit back and wait this one out for now.




I'm inclined to follow this plan of attack (defence?) too. 

What is apparent is that, depending on your time in the trading/investing game I assume, some paradigms are adhered to religiously at the expense of the facts. From the first post is was assumed that the market(s) would continue to rise after all of these 'corrections', as it has done in the past, & we will be merrily on our way again.

The problem with this logic is that the view is not balanced in that the possibility of the start of a secular bear market is not even put forward as a possible strategy eg the market always bounces back, ever higher.

From the research I do we have entered a period of synchronised world instability not seen since the great depression, only the severity is in doubt. How you trade it is up to you, but I try to have a neutral view & trade/invest the facts? Now they are decidedly bearish.

Buy & hold strategy for gold, short financials & the rest, including Aussie banks.

The domino order - USA, China, Australia - timeframe lags but collateral damage will be unavoidable.

Sell now, buy ??????

Chart - China B Shares


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## Rainmaker2000 (26 November 2007)

Thanks Festivus, good to hear some more downbeat banter as the global economy is now developing some serious imbalances.....bubbles in China and around, overindebted Western consumers, rapid currency movements, the cost of debt in rising rapidly even independent to official interest rates.....something has got to give......all we need is the dominant bear market theme.....and it looks at this stage it will be a banking meltdown....but it could be something under the radar..........I remain fully invested with margin but I sure remain a very active portfolio manager!


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## macca (26 November 2007)

Rainmaker,

I dips me lid to ya  

You are braver than me, then again I trade with my super fund and I am retired, so I guess I am a bit more cautious 

Good fortune to you

Macca


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## Rainmaker2000 (26 November 2007)

Thanks Macca, I'm in my late 20's and in a hurry to be financially free....I would not be doing this even when I'm 40.......but I put a lot of work into my investing and a lot of discipline into the method....I aim to always be 'the smartest guy in the room', but of course that's more aspiration than realisty..hehe.....I figure in our tax system, if its worth doing, it's worth using debt....I also just love the stock market, the more volatile, the better


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