# Lessons learnt during a market crash



## korrupt_1 (22 January 2008)

So, it's crash now.

This is my first experience of having open trades during a crash. (I missed the Aug 07 one by a week).

I was wondering, what lessons have people/traders have learnt over the past few crashes? What was the key to suriving it? What tips can experienced ex-market-crash traders provide to us noobs to crashes?

Watching my investment's value decline is painful so I guess one way is to unplug the system and ignore it for a few days, hoping when I come back i a week (or a months), all better... easier said than done I guess


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## Nyden (22 January 2008)

Yes. What lessons (expensive ones) can I claim as tax deductions here?


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## adobee (22 January 2008)

You can only offset a capital loss against a capital gain that is correct it think ?? I am going to have to sell a property to cover todays losses..


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## Nyden (22 January 2008)

adobee said:


> You can only offset a capital loss against a capital gain that is correct it think ?? I am going to have to sell a property to cover todays losses..




Unfortunately, yes. Unless trading is your profession.

There's no rush though adobee, capital losses don't expire, you can use them in 4 years if you want.


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## korrupt_1 (22 January 2008)

does yoga help? i keep seeing yoga adds everwhere.


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## Flying Fish (22 January 2008)

Nyden said:


> Unfortunately, yes. Unless trading is your profession.
> 
> There's no rush though adobee, capital losses don't expire, you can use them in 4 years if you want.




Great four years !!


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## wintermute (22 January 2008)

well I haven't been in a crash before, may 2006 correction is the worst I have endured prior to this.  What did I do, and what did I learn? 

I waited it out. 

I found that my spec stocks were hit hardest and also tended to take the longest to recover their lost ground.  Some stocks get hit for six and then stay down. 

Feb 2007 I sensed an imminent correction and sold off some stuff prior, bought in the midst of it and then got scared and sold the stuff I bought on a bounce, Should have kept it, as that would have made me quite a bit of money, however that was a very quick "claytons" correction. 

I was saying in Feb last year that I thought that we wouldn't see a crash until 2008 but I didn't sell up before this one came along, as I didn't think that we had seen an exhaustion peak, the signs have been here for the last three months that the market was retreating, but I didn't pay too much attention (have been preocupied with other things). I guess its a case of don't take your eye off the ball!!! 

Today my share portfolio went from -19% to -29%  and who knows how much lower it will go..... I'm not too worried, and if I had the spare cash, I'd probably be picking up some bargains, as most of my stocks I feel are already undervalued, so large drops just makes them more so.... such is the lot of a contrarian investor!!  

Tony.


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## wintermute (22 January 2008)

on the four years, I think that was for example, as opposed to you have to use them before that time. 

One caveat though with respect to carrying forward capital losses... If you have a low income year with capital gains, you have to use the capital losses to offset the capital gains even if you would not have paid any tax on those gains!!!  It really sucks.  How do I know?? Because I took 18 months off, had very little income, and had to use up about 5K worth of prior losses against a 5K gain even though my total income for the year was only just above the tax free threshold. 

Tony.


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## Nyden (22 January 2008)

wintermute said:


> on the four years, I think that was for example, as opposed to you have to use them before that time.
> 
> One caveat though with respect to carrying forward capital losses... If you have a low income year with capital gains, you have to use the capital losses to offset the capital gains even if you would not have paid any tax on those gains!!!  It really sucks.  How do I know?? Because I took 18 months off, had very little income, and had to use up about 5K worth of prior losses against a 5K gain even though my total income for the year was only just above the tax free threshold.
> 
> Tony.




Yes, you can keep your losses indefinitely. Offset them against profits made on a property, or anything else.


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## Judd (22 January 2008)

Nyden said:


> Yes, you can keep your losses indefinitely. Offset them against profits made on a property, or anything else.




True but I also think that the "cash value" of the capital loss is being slowly eroded by inflation.  Rule of 72 applies.


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## Nyden (22 January 2008)

Judd said:


> True but I also think that the "cash value" of the capital loss is being slowly eroded by inflation.  Rule of 72 applies.





Yes, but one would hope you wouldn't wait 10 years to use 'em :


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## Buffettology (22 January 2008)

This stop loss concept on value stocks is something that within 24 hours, appears a far better concept! ha ha.  

All a learning curve, but Im sure this will just be a blip in the long-run scheme of things.  

Here is something for you guys if you feel bad:

A mate of mine works for one of the big banks, just the other day, a woman gave him a $1.2 million cheque to invest for her.  They invested it into a spec stock (WTF?) and its now worth $850,000.  

Imagine being that woman?  

I have lost a bit over 10k so far, from a portfolio invested of around 100k, so Im far out of her kind of league!


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## TheRage (22 January 2008)

While I don't find your story difficult to believe, I do have trouble believing that if she invested that much on the advice of what I can only tell to be a Financial Planner at a bank that he would be foolish enough to invest so much of her money in one stock. However if this only represents one hundreth of her portfolio size, ie Net worth 100million, then that is a different kettle of fish.


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## jersey10 (22 January 2008)

just shows you should always have an automatic stop loss. mine is set at 2% of my trading capital.  i use TA and always have a stop loss.  The max i will ever lose is 2% of my trading capital


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## Temjin (22 January 2008)

jersey10 said:


> just shows you should always have an automatic stop loss. mine is set at 2% of my trading capital. i use TA and always have a stop loss. The max i will ever lose is 2% of my trading capital




Remember that this only occur if your stops are not gapped out. This may work almost perfectly in markets such as the FOREX, but not for equity.


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## jersey10 (22 January 2008)

Temjin,

i am relatively new to trading.  can u explain what u mean by gapped out and why it won't be as effective for equities?


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## korrupt_1 (22 January 2008)

gapped out means you were closed at a lower priced that you wanted because either there was noone wanting to settle the trade at your stop loss price or the market was closed and it opened lower.

eg.... You have stop loss of $3.80. XYZ closed for the day at $4.00. Overnight, market turned bad. The next trading day XYZ opens for trading at $3.50. You we're gapped out. ie you were $0.30 below your stop loss value.


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## jersey10 (22 January 2008)

thanks for the explanation korrupt, it is always good to learn the lingo


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## Buffettology (22 January 2008)

TheRage said:


> While I don't find your story difficult to believe, I do have trouble believing that if she invested that much on the advice of what I can only tell to be a Financial Planner at a bank that he would be foolish enough to invest so much of her money in one stock. However if this only represents one hundreth of her portfolio size, ie Net worth 100million, then that is a different kettle of fish.




True.

It was just a Financial Planner.  No idea what % of her portfolio it was.  Either way, it would still hurt!  

He said a LOT of the banks investments are being HAMMERED (they bought a few spec stocks in large blocks).  Said the mood in the place is agony at the moment!


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## Wysiwyg (22 January 2008)

korrupt_1 said:


> So, it's crash now.
> 
> I was wondering, what lessons have people/traders have learnt over the past few crashes? What was the key to suriving it? What tips can experienced ex-market-crash traders provide to us noobs to crashes?





I`m not a boob and i`m not an experienced ex-market-crash-trader but i do feel i can say .... sever emotion, minimise losses (some call this fear) maximise profits (some call this greed)

It`s your life, you make the decisions.


p.s. want detail ?? ... spend time in the kitchen.


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## 3MT (22 January 2008)

What I learnt is you gotta have an exit strategy with each trade. Buy and hope is not a strategy.

Learn to play the stop losses. Could be 5% could be 2% or 20%. It's depends on your trading style and stocks you buy.

You gotta understand the company you buy to some extent. by understanding you need to know its fundamentals (what they do, debt levels, cashflow, book value, capitalisation, earnings, PE relative to industry, PEG) and also its obvious support/resistance level (part of formulating your entry and exit strategy). You will see that companies with strong fundamentals will fall the least and/or recover the quickest and the others ... well many stay comatised.

Don't revenge trade (ie trying to make up for losses instead of trying to pick good stocks at good prices to enter) - you can't remove emotion. when its your hard earnt involve there's always emotion.

Don't trade the market. Trade the stock.

Don't think too macro. You gotta ask where is each pay day's super money going to? Unlike US, Europe have a unique situation in Australia, support from China and compulsory super. Some companies will be wiped out for obvious reasons (debt), but many will still prosper. 

Find the prosperous ones and then share it with us all


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## cordelia (22 January 2008)

stop losses are important. If you wait it out it may take years fro your stock to recover to a break even point and inflation will erode the value. If you have bought at the top there will be plenty who have bought lower than you n the way down and are waiting to get out but at a lower price. It may never reach the price you paid for it and all the time you have no capital to snap up the bargains that will begin to emerge. Even the share you lost money in.

lesson: never buy a share without a plan for when you will sell it and cut your losses, take what's left of your capital so you can start over.

Also do plenty of research. Watch your investments..its all in the price not what is being said....


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## marklar (22 January 2008)

korrupt_1 said:


> What tips can experienced ex-market-crash traders provide to us noobs to crashes?



Haven't experienced a true crash yet, unless you count the Year 10 commerce class "pick a portfolio of stocks and see how it does at the end of the year" in 1987, but...

1. Don't risk what you can't afford to lose (yeah, I know, too late if you're already over your head)
2. Don't try and second-guess your original reasons for buying a stock, it might make you alter your exit strategy & bite you hard
3. Trade to your plan (you did plan for the market to go down, didn't you?) and don't react to market sentiment
4. Learn something from your mistakes
5. There are safer ways to make a $, but they're not nearly as much fun!

Platitudes, yes I know, but it isn't rocket science (unless you're trading CFDs, I really should learn about them) ...introspection perhaps? Too much Remy XO?

m.


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## Buffettology (23 January 2008)

3MT said:


> What I learnt is you gotta have an exit strategy with each trade. Buy and hope is not a strategy.
> 
> Learn to play the stop losses. Could be 5% could be 2% or 20%. It's depends on your trading style and stocks you buy.
> 
> ...




Gold!  The stop loss part I have only just learnt!  Trouble is, next time I put in my stop losses, the market will suddenly rally (i.e.  last correction) and I will be left out to dry!  

I think I also learnt I need a crystal ball!  

But Im comfortable with my portfolio for the long-term, just that I could have got some far better prices!  Ah well, still got a bit of cash floating around to snap some up!


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## Wysiwyg (23 January 2008)

Buffettology said:


> Gold!  The stop loss part I have only just learnt!  Trouble is, next time I put in my stop losses, the market will suddenly rally (i.e.  last correction) and I will be left out to dry!
> 
> I think I also learnt I need a crystal ball!
> 
> But Im comfortable with my portfolio for the long-term, just that I could have got some far better prices!  Ah well, still got a bit of cash floating around to snap some up!




Did big Warren use stop losses


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## Buffettology (23 January 2008)

Wysiwyg said:


> Did big Warren use stop losses




Never read one he used! Though, I havent kept upto date with Birkshire investments as of late.  

Maybe you could enlighten me?  

Though, I have adapted my techniques somewhat from his, since long-run historical returns of a company are not as easy to come bye as they are in the US!

But yes, I concede defeat and though I value a stock and only buy once I think the price is right, I have definately learnt stoplosses can work when market sentiment turns into uncontrollable fear!  Havent seen that in my 13 years though, maybe I should have been around in 87!


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## Wysiwyg (23 January 2008)

Buffettology said:


> Never read one he used! Though, I havent kept upto date with Birkshire investments as of late.
> 
> Maybe you could enlighten me?




Nup can`t, but don`t think he would have.Buy and hold philosophy.




Buffettology said:


> Though, I have adapted my techniques somewhat from his, since long-run historical returns of a company are not as easy to come bye as they are in the US!





BHP (being a good example) shows 2003 as the year s.p. growth (dividend?)made a meaningful appreciation.



Buffettology said:


> But yes, I concede defeat and though I value a stock and only buy once I think the price is right, I have definately learnt stoplosses can work when market sentiment turns into uncontrollable fear!  Havent seen that in my 13 years though, maybe I should have been around in 87!




Agree, one could hardly say that the decline wasn`t telegraphed.


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## Buffettology (23 January 2008)

Wysiwyg said:


> Agree, one could hardly say that the decline wasn`t telegraphed.




The irony is I was one of those telegraphing it!  I held about 70% of my portolio in cash anticipating it for most of last year, only buying and selling on some massive volatility and hence great opportunities came up.  Though, then I became too greedy and dumped about 85% of my portfolio into the market.  

You live and you learn, these things happens, life goes on.


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## stockpanther (23 January 2008)

*korrupt - you're famous mate *

http://www.news.com.au/business/story/0,23636,23093739-462,00.html


Gen Y gets its first taste of a meltdown

By Victoria Laurie and Anthony Klan

January 23, 2008 02:00am
Article from: The Australian

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WHILE Gen Y investors flooded sharemarket chat sites begging for advice on what to do, 32-year-old broker Ben Polkinghorne spent much of yesterday telling his clients to "hold tight" during the biggest market bloodbath in decades.

It was a different story in cyberspace, where the internet generation was reacting to its first taste of market meltdown. On sites such as HotCopper and Aussie Stock Forum, young bloggers who were losing big money by the minute were panicking.

"For f%%$$K's sake, a bounce must be coming? Maybe it is the end of the world," wrote one blogger on HotCopper, which claims to be Australia's largest stock market internet forum. Fellow HotCopper blogger "Rogues Trade" jokingly offered to hire a bus and drive it off Melbourne's West Gate bridge, offering "25 seats" to fellow distraught young investors.

"Oh what a terrible day, time for a Valium or something stronger," wrote another.

*On Aussie Stock Forums, young investors were asking for the advice many baby boomer parents had been dishing out for years. "This is my first experience of having open trades during a crash, I missed the August 07 one (a minor correction) by one week," wrote korrupt1.

"I was wondering what lessons have people/traders learned over the last few crashes ... (and) what tips can experienced ex-market crash traders provide.

"Watching my investments' value decline is painful so I guess one way is to unplug the system and ignore it for a few days, hoping when I come back in a week (or a month), it will be allbetter." *


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## korrupt_1 (23 January 2008)

stockpanther said:


> *korrupt - you're famous mate *




LOL... didn't expected that to happen!


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## skating101 (23 January 2008)

Lessons learnt during a market crash:

Buy instead of sell as the Federal Reserve will always be there to bail you out hahahahaha


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## Buffettology (23 January 2008)

skating101 said:


> Lessons learnt during a market crash:
> 
> Buy instead of sell as the Federal Reserve will always be there to bail you out hahahahaha




ha ha ha ha ah ah ha ah aha.


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## zt3000 (23 January 2008)

never short a stock after a massive fall in anticipation of further carnage despite what futures markets, ie Dow Futures show

ffs ... got majorly burnt this morning

bah


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## Buffettology (23 January 2008)

zt3000 said:


> never short a stock after a massive fall in anticipation of further carnage despite what futures markets, ie Dow Futures show
> 
> ffs ... got majorly burnt this morning
> 
> bah




Ouch!  Good you learnt that lesson!


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## wintermute (23 January 2008)

Well if I'd sold yesterday I'd be 5.5K worse off today.  My stocks plummeted 7K yesterday but are back up 5.5K today...  If I was inclined to sell,  today would be a much better day... is it just a dead cat bounce?? Maybe!!!  Certainly from corrections I've observed, you get a plunge, then a bounce when everyone thinks it went ridiculously low, then another plunge, then a heap of volatility for a few months.  If you have the nerves you can swing trade that volatility, but you never can tell whether (or when) there will be another bounce. 

Fundamentally I think this correction is a little overdone, blind panic about what people thought was going to happen in the US.   The US have managed to prop things up for a tad longer and suddenly our market surges back.... You would think that our market would be able to trade on it's own merits, but apparently not.... Oh well Time is a great equaliser  

Tony.


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## tech/a (23 January 2008)

What makes you think this is over?

I'm sure there will be more lessons learnt.


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## Julia (23 January 2008)

tech/a said:


> What makes you think this is over?



Let's see what the reporting season brings before doing too much celebrating.
I wouldn't be buying into this burst of enthusiasm.


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## numbercruncher (23 January 2008)

I think there is some good opportunity for long term investors out there.

Also plenty of gamble for those so inclined ! 

But your all correct, I dont think the fat lady has sung yet !


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## saichuen (23 January 2008)

That yesterday was a good day to buy and today is a good day to sell.


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## dj_420 (23 January 2008)

I learnt to try and identify market movements prior to the crash. I had liquidated a lot before the correction in Aug, bought back in and sold most again arounf November. In hindsight I should have waxed the lot and shorted the shizen out of every indices possible.

I also learnt that even in bad times you have 1-2 days to get out, like this crash, it has been a slow motion train wreck, there was plenty of time until last two days to get out.

I also learnt to sell into strength on a bounce, massive short covering and euphoria this morning pushed the market up and smart money sold into the rise IMO.


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## >Apocalypto< (23 January 2008)

don't buy shares! :

if u do, don't buy off the first minor rally!


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## coke (23 January 2008)

dj_420 said:


> I learnt to try and identify market movements prior to the crash. I had liquidated a lot before the correction in Aug, bought back in and sold most again arounf November. In hindsight I should have waxed the lot and shorted the shizen out of every indices possible.
> 
> I also learnt that even in bad times you have 1-2 days to get out, like this crash, it has been a slow motion train wreck, there was plenty of time until last two days to get out.
> 
> I also learnt to sell into strength on a bounce, massive short covering and euphoria this morning pushed the market up and smart money sold into the rise IMO.




Attempting to identify market peaks and bottoms are highly un-reliable in today's complex financial environment. Statistics show only 10% of success at most, which means you will get it wrong 9 out of 10 times. And no reputable investor will ever recommend this technique.

If you think you have learnt to accurately identify market movements, all I could say is you haven't learnt anything positive.


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## coke (23 January 2008)

From Fat Prophets. A good read for many of us here.

Losing Money Is As Inevitable As Taxes And Death 

Losing money in a down market is not screwing up. It is just a natural and inevitable experience on the rollercoaster ride of long-term investing. 

It is worth remembering that the market usually goes down a lot faster than it goes up, yet over the market's past hundred years, two out of every three years go up. 

For example, in August last year, just as the US sub-prime crisis was first emerging, the All Ordinaries Index was actually down on the year. It eventually finished up 14% for 2007. At that point in time, it was all doom and gloom. Just as it is now. 

Set-backs, corrections and pauses are part and parcel of the long-term investing game. Yet if you focus on the big picture, and remind yourself that stock market investing is a marathon, not a sprint, over the long-term you should be well rewarded. 

What The Very Best Investors Do In Times Like These. What do you do during these times of periodic stock market wobbles? 

a. Watch the market falling, but ultimately do nothing, waiting out the storm.

b. Sell everything to avoid further losses.

c. Buy some more of your favourite stocks.

d. Avoid looking at anything to do with the share market, including checking your portfolio, reading the newspaper and internet sites, and definitely not watching Alan Kohler's finance report on ABC evening news.

In many ways, how you react to these periodic stock market wobbles defines you as an investor. 

If you react by selling everything as in options b) above, you are probably not suited to stock market investing. 

We don't blame you if you sit on the sidelines, waiting out the storm. 

But what really sets the best investors apart from the average investors is their ability to calmly and rationally assess the situation, to concentrate on the underlying value of the company and not its falling share price, and to take advantage of the falling share market to buy some more of their favourite shares at even cheaper prices. 

Optimism Is Your Enemy 

Last week we read a very interesting interview in the Australian Financial Review with Christopher Davis of US investment manager Davis Funds. 

This quote in particular is very telling… 

"You want to invest in times of pessimism. Not because you like pessimism, but because you like the prices it produces. Optimism is the enemy of the rational buyer." 

Davis Funds shot to fame recently when they took a 5% stake in struggling US investment bank Merrill Lynch at US$48 a share. 

Investing in the US banking sector takes guts. The more news that comes out about the extent of the US sub-prime losses, the more uncertainly surrounds the future prospects of many banks. 

Yet, in that uncertain environment, Davis Funds have paid US$48 per share for their 5% stake in Merrill Lynch. Tellingly, Davis have no idea if the worst is over and that they have picked the bottom of the market. 

But, they do think Merrill will turn out to be an attractive purchase over the next five or 10 years. 

It reminds us of the Warren Buffett quote… 

"It's better to be approximately right than to be precisely wrong." 

At $US48 per Merrill Lynch share, on a 5 to 10 year perspective, Davis is banking on being approximately right. 

We think his investing decision will be vindicated because… 

He is buying at a time of pessimism, and pessimistic times produce attractive prices.

He is taking a long-term perspective. 

How To Tell If You Are A Good Or Lucky Investor 

It's always nice to make a profit. It's even nicer when that profit comes quickly. Quick profits are exciting. They give you the confidence to try to make more of them, and make them just as quickly, or even quicker. 

Quite a few people we know have made quick profits by investing in mining and resources companies. Just like a rising tide lifts all boats, the share prices of many mining and resources companies have been lifted by rising tide of the stock market. 

When people are making easy money, they get over-confident. They think they are good investors when in fact they may just have been lucky investors. 

Are you good, or are you lucky? 

Or don't you know? 

If you don't know if you are good or lucky, we'd respectfully suggest you're likely to be just plain lucky. 

The $80 Billion Wipe Out 

Smart and experienced investors know exactly what they are doing. They know that when they buy shares, they are investing in a company and not a share price. 

They also know they are making long-term investments, and that over the short-term, the share price can and usually does move independently of the underlying value of the company. 

For example, it's hard to imagine the value of BHP Billiton has fallen by $80 billion in just the last 3 months. 

But that is exactly what has happened to the value of the company. In October last year the shares traded above $47, valuing the entire company at around $265 billion. Today the shares trade around the $33 mark at which price BHP Billiton is valued at around $185 billion. 

Poof. $80 billion gone. Just like that! 


The share prices of some of our very favourite resources and mining stocks have been beaten down, in some cases, quite savagely. 

This could be considered disappointing if… 

you are an imminent seller of stocks to fund, for example, the purchase of a new car, an investment property or some other alternative asset.

you are a regular share trader, used to making quick profits, banking them, and moving onto the next quick win. There are no quick wins in this stock market.
As an aside, there is a saying amongst active stock market traders that a long-term investment is a short-term investment gone wrong. We suspect that all of a sudden, there might be quite a few more few long-term investors today than there were a couple of weeks ago! 


you are investing on margin (borrowed money) and your broker is making margin calls, forcing you to sell or take losses when share prices are at a low point.

you invested in the stock market with money you weren't prepared not to touch for at least 3 years, ideally 5 years or more.

you don't like seeing the value of your assets going down.
You Have Our Heartfelt Sympathy 

We completely sympathise with you if you have been caught out regarding your margin trading. The last 12 days have been brutal and although here at Fat Prophets we've been expecting increased stock market volatility, we certainly didn't expect the market to fall every single day for this long. 

We also completely sympathise with you if you don't like the look of your personal assets in somewhat of a freefall. It's not pleasant. 

But if you have over-extended yourself regarding borrowings, if you expected to make a quick profit on the stock market because everyone else was, or if you invested in the latest hot tip, knowing little to nothing about the company…well, we suspect you are learning a harsh and expensive lesson. 

What Should You Do Now? 

It partly depends on your attitude to stock market investing, your time scale, and your liquid resources. 

But presuming you are willing and able to invest for the long term, realise that, over time, the stock market will go down as well as up, and you have some cash to invest in the market, around now is likely to be an excellent time to be buying shares. 

That said, just like Christopher Davis of Davis Funds, we don't know if today is going to be the bottom of the market, and we don't know if the worst is soon to be over. 

In the short-term, this stock market is driven by fear and panic. Those two emotions always produce irrational prices. Share prices can and will fall to levels that appear to be totally irrational. 

Blood On The Stock Market Floor - Time To Buy 

In fact, on Tuesday this week, with the stock market in freefall, the Commsec website crashed out, there was widespread forced selling due to margin calls and we had website headlines like "Blood on the floor as market slides". 

Into that unwelcoming environment, amidst the fear and panic, Fat Prophets sent out a special BUY email alert. 

Titled "Buy quality", we said… 

"…after considering the market action this morning, we believe that some stocks have been sold off way too aggressively. Many investors are being hit with margins calls and this is leading to capitulation selling. The good is being thrown out with the bad. 

Given this situation, we believe it is time to buy quality large gold and resource stocks. 

We obviously can't be certain that this is the bottom for these stocks but we are still confident in our longer term bullish call on 'real' assets (gold, oil etc) versus paper assets. 

The bottom line is that successful investing is counter-intuitive. Good long term buying opportunities emerge when the situation looks to be the most dire."


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## dj_420 (23 January 2008)

coke said:


> Attempting to identify market peaks and bottoms are highly un-reliable in today's complex financial environment. Statistics show only 10% of success at most, which means you will get it wrong 9 out of 10 times. And no reputable investor will ever recommend this technique.
> 
> If you think you have learnt to accurately identify market movements, all I could say is you haven't learnt anything positive.




I would tend to disagree with that, surely some kind of a top could be seen in early November. Look at the charts, that kind of correction and then massive rise in the space of two months surely spelled disaster.

I wouldn't say I could pick those moments accurately, but trusting my judgement I began liquidating when were close to the top, the reason I started selling then was because I did not feel safe holding such large positions. Quite a few people sold out during this period because they felt uncomfortable holding a massive amount of shares with such a large potential downside.

Same goes if this was in normal market conditions I would be more inclined to load up at the confirmed bottom of the correction. The real question is to you feel comfortable holding a large amount in shares given the present environment?

IMO I would say not at these prices, possibly if market has further falls we could see some real value come out of the woodwork.


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## sideshowbob (23 January 2008)

coke said:


> From Fat Prophets. A good read for many of us here.
> For example, in August last year, just as the US sub-prime crisis was first emerging, the All Ordinaries Index was actually down on the year. It eventually finished up 14% for 2007. At that point in time, it was all doom and gloom. Just as it is now.




Ok ... I stopped reading this article right about here.

Comparing the correction in August last year to what is happening now is ridiculous. If the article's advice is based on this foundation... then it is mistaken.
We hit the bear market yesterday. We got out today... but we will be back in it tomorrow. This is a totally different scenario.

Strategies during a correction.
1. Topping up
2. buying at a bottom 

will get u a headache at the very best.

Strategies during a bear market should be IMO
1. Waiting for the volatility to go away before getting back in
2. Holding on to what you have OR getting out.

This is not a market that should be played right now.
And if so... let the investors know that it is one BIG GAMBLE!

At what point do we concede that this is a bear market.
It is as if people need to see a one day crash similar to 1987... before they realise the cat has hit the fan... and there is nothing left for a bounce.


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## coke (23 January 2008)

sideshowbob said:


> Strategies during a correction.
> 1. Topping up
> 2. buying at a bottom
> 
> will get u a headache at the very best.




Plz explain.



sideshowbob said:


> Strategies during a bear market should be IMO
> 1. Waiting for the volatility to go away before getting back in
> 2. Holding on to what you have OR getting out.




If you hold quality stocks, and if you are a longer term investor, both of these strategies are wrong.




sideshowbob said:


> This is not a market that should be played right now.
> And if so... let the investors know that it is one BIG GAMBLE!
> 
> At what point do we concede that this is a bear market.
> It is as if people need to see a one day crash similar to 1987... before they realise the cat has hit the fan... and there is nothing left for a bounce.




I never suggested anyone to 'play' in the market, see my post earlier.


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## sideshowbob (23 January 2008)

coke

Im not sure if you wrote that article. I wasnt implying "you" said anything. 

Im merely suggesting that the strategies available in the August correction are not good options right now. Because... as the article wrongly implies... this is not like the correction in August. 

We are in a bear market. And thus I would be suspicious of any advice the article provides. 

If you are a long term investor... IMO your options are simple.

If you are already in the market... 
1. you hold on or you get out. (depends on how long u are willing to be in)

If you are not in....
Wait for the volatility to go away. and then go in.

I suggest that everything else is a gamble in the market today. And in effect you are playing roulette if you try....

_But what really sets the best investors apart from the average investors is their ability to calmly and rationally assess the situation, to concentrate on the underlying value of the company and not its falling share price, and to take advantage of the falling share market to buy some more of their favourite shares at even cheaper prices._

TOPPING UP...in a bear market is the wrong advice! IMO


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## cordelia (24 January 2008)

stop acting on the say so of others but take heed of what they say. Do your own research and look after your capital.


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## theasxgorilla (24 January 2008)

cordelia said:


> stop acting on the say so of others but take heed of what they say. Do your own research and look after your capital.




Doesn't that just sum it all up nicely in one concise sentence!


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## korrupt_1 (25 January 2008)

If you are trading with leverage, and the market crashes, then just before you can't afford anymore margin calls - cos your capital is dwindling... short the same amount to hedge against further falls.

It freezes your loss... as the market drops and you feel that a bottom is near, cash in on your shorts (which is equal to the amount that you would had been margined for)

As the market goes back up,.. you should be back in the green with extra funds as you've profitted from the shorts..

The danger is that at the moment you open a short, it could be the bottom and you've basically locked your losses in... even when the market goes up, you're stuck with that loss, at which time you may consider closing those shorts for a small loss...

Also, another danger is if you close your short too soon, you could still be faced with further margin calls as you now do not have anything to stop the bleeding... if you do open another short from the bottom... it's high risk as generally in a crash the market will bounce back very quick and your short may be stuck there.


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## cordelia (26 January 2008)

theasxgorilla said:


> Doesn't that just sum it all up nicely in one concise sentence!





well I am no expert but i have recently lost money because I listened to others and didn't find out the facts for myself..Pretty basic stuff really.


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## noirua (10 June 2022)

1973–1974 stock market crash - Wikipedia
					






					en.wikipedia.org
				



In the 694 days between 11 January 1973 and 6 December 1974, the New York Stock Exchange's Dow Jones Industrial Average benchmark suffered the seventh-worst bear market in its history, losing over 45% of its value.[2] 1972 had been a good year for the DJIA, with gains of 15% in the twelve months. 1973 had been expected to be even better, with Time magazine reporting just 3 days before the crash began that it was 'shaping up as a gilt-edged year'.[3] In the two years from 1972 to 1974, the American economy slowed from 7.2% real GDP growth to −2.1% contraction, while inflation (by CPI) jumped from 3.4% in 1972 to 12.3% in 1974.[1]

The effect was worse in the United Kingdom, particularly on the London Stock Exchange's FT 30, which lost 73% of its value during the crash.[4] From a rate of 5.1% real GDP growth in 1972, the UK went into recession in 1974, with GDP falling by 1.1%.[1] At the time, the UK's property market was going through a major crisis, and a secondary banking crisis forced the Bank of England to bail out a number of lenders.[5] In the United Kingdom, the crash ended after the rent freeze was lifted on 19 December 1974, allowing a readjustment of property prices; over the following year, stock prices rose by 150%. The definitive market low for the FT30 Index (a forerunner of the FTSE100 today) came on 6 January 1975, when the index closed at 146 (having reached a nadir of 145.8 intra-day). The market then practically doubled in just over 3 months.[5] However, unlike in the United States, inflation continued to rise, to 25% in 1975, giving way to the era of stagflation. The Hong Kong Hang Seng Index also fell from 1,800 in early 1973 to close to 300.[6]


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## noirua (10 June 2022)

noirua said:


> 1973–1974 stock market crash - Wikipedia
> 
> 
> 
> ...











						The year the economy went 'bung'
					






					www.theage.com.au
				




It was the year Australia's current account slid into deficit, never to return. From a surplus of 1.5 per cent of GDP in mid-1973, the balance of Australia's transactions with the world crashed to a deficit of 3.2 per cent by the end of the 1974.

It was the year when profits collapsed; industrial disputes escalated; and a housing boom gave way to the steepest bust on record. For the economy, 1974 was the end of the good times.
--------

This chart shows a calculation of buying power equivalence for $1 in 1974 (price index tracking began in 1635).

For example, if you started with $1, you would need to end with $5.86 in order to "adjust" for inflation (sometimes refered to as "beating inflation").


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