Buy in gloom, Sell in boom

[Ken]

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.

 

[reece55]

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

 

[Ken]

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.

 

[ROE]

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.

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

 

[Ken]

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....

 

[Rainmaker2000]

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

 

[dhukka]

Re: buy in gloom sell in boom

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.

 

[wayneL]

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.

 

[Flying Fish]

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

 

[macca]

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

 

[wayneL]

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

The global credit crisis has hit Asia with a vengeance for the first time, triggering a massive flight to safety as investors across the region pull out of risky assets.
# China beats Germany to take world trade crown
# China threatens to trigger US dollar crash
# A whisper in your ear from City gurus

Yields on three-month deposits in China and Korea have plummeted to near 1pc in a spectacular fall over recent days, caused by panic withdrawls from money market funds and credit derivatives.
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"This is a severe warning sign," said Hans Redeker, currency chief at BNP Paribas. "Asia ignored the credit crunch in August but now we're seeing the poison beginning to paralyse the whole global economy," he said.

Korean and Chinese three-month yields have fallen from 4pc to 1pc in a matter of days in a eerie replay of events in late August when flight from banks and the US commercial paper markets caused yields on three-month Treasuries to falls at the fastest rate ever recorded. Asian investors appear to be opting for deposit accounts with government guarantees.

It is unclear what prompted this latest "heart attack" in the credit system, though rumours abound that Asian banks have yet to own up to their share of the expected $400bn to $500bn losses from the US mortgage debacle.

Stock markets were battered across the region. The Hang Seng index in Hong Kong fell 4.15pc, while Tokyo's Nikkei slumped to the lowest level in a year and a half, dragged down by the shares of the 'Seven Samurai' exporters.

Asian jitters set off fresh turmoil on Europe's credit markets. The iTraxx index measuring default insurance on bank and insurance bonds hit an all-time high of 63.5.

"The whole financial market is in turmoil with Bund-Swap-Spreads going through the roof," said Andrew Guy, director of ADG Capital Management.

Marcus Schuler, director of credit marketing at Deutsche Bank, said spreads on low-grade European bonds had been jumping ten basis points a day for the last week. "There's been risk aversion across the board," he said.

In a rare move, the European Covered Bond Council said it was suspending trading of mortgage-linked bonds in the inter-bank-market owing to the "undue over-acceleration in the widening of spreads".

Abbey National today cancelled its sale of covered bonds, the third company to withdraw an issue this week.

Charles Dumas, chief strategist for Lombard Street Research, said credit woes had led to an alarming spike in the 'Ted spread' between commercial Libor and US Treasury bills, now near 150 basis points. "Libor is at a premium to T-bills not matched the great crash in 1987," he said.

Mr Redcker said the flight from risk has led to a sudden unwinding of the $1,200bn yen "carry trade" as hedge funds and Japanese investors close risky positions. The yen has snapped back violently from yen118 to yen108 against the dollar since early October, with similar moves against other Anglo-Saxon currencies.

"We're seeing a liquidation of the carry trade. For years it created liquidity for global equities in an upward spiral, but this has now turned into a downward spiral. Base metal prices are falling, which that tells us that Asia may not be as strong as we thought," he said.

Copper prices fell 6.4 percent in Shanghai today. It follows data showing China's copper imports fell 4.4pc in October, a sign that central bank moves to choke off credit is starting to slow runaway investment in heavy industry and construction.

Jerry Lou, China analyst for Morgan Stanley, said the Shanghai bourse -- already down 15pc -- was now the word's "biggest valuation bubble". "Lessons from Japan in the late 1980s show that once the stock market starts to head down, earnings and multiple contraction can together crush the market like a market rolling downhill," he said.

 

[dr cloe]

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.....

 

[mayk]

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.

 

[Out Too Soon]

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.

 

[Ken]

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.

 

[wayneL]

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.

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.

 

[rederob]

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.

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.

 

[Rainmaker2000]

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

 

[Uncle Festivus]

Re: buy in gloom sell in boom

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

 

[Rainmaker2000]

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!