What shares would you buy in a market crash?

[TheUnknown]

As title says a market crash happens like 08-09. What shares would you purchase?
Banks? Blue Chips?

We all seen what happened to CBA during and after crash in 08.

What are your picks?

 

[springhill]

Re: Market Crash

As title says a market crash happens like 08-09. What shares would you purchase?
Banks? Blue Chips?

We all seen what happened to CBA during and after crash in 08.

What are your picks?

After the next crash, whenever that may be, you will be best off investing in arms and ammunition.

 

[So_Cynical]

Buy what's super cheap!

 

[Bill M]

Banks, I bought all 4 of the big banks during the crash and it was the CBA I bought most of.

At that time eveything was cheap, I bought some ETF's that covered our market as well. All of them paid off well.

If it happened again I would load up on high dividend yield ETF's like SYI and VHY put them in my super and collect the nice juicy dividends for the rest of my life.

 

[Trade wind]

Buy whatever you think will recover best. Bank stocks are usually good but not always. I'm thinking the 1987 crash when Westpac went from Australia's biggest bank to the verge of bankruptcy. Banks will be hammered if the next crash is accompanied by a collapse in real estate prices. Miners might be good if it looks like China will ride it out, but I doubt it, and China may well hit the wall first if its own dodgy banking system collapses. Traditional safe stocks - utilities, big telcos, etc. - are a better bet, especially if they pay decent dividends and interest rates are zero.

But the problem of buying in a market crash is picking the bottom. Buy at the bottom and just about anything is good buying. Buying in, say, the March-May 2008 recovery when it looked like the worst may be over, would have been disastrous given what happened over the next few months.

And if you're waiting for a market crash to buy, well, odds are it won't happen. Though you'd think with QE coming to an end, overheated US (and therefore world) markets will deflate, if not burst, and some good buying might be coming up. Looking at the stellar price of bank and retail stocks in Australia, this is a good time to sell, not buy.

 

[Value Collector]

As title says a market crash happens like 08-09. What shares would you purchase?
Banks? Blue Chips?

We all seen what happened to CBA during and after crash in 08.

What are your picks?

As So c mentioned above you buy the companies that are super cheap.

It's possible to get a rough idea of what a company is worth based on the things it owns and the earnings it can generate from those things and the outlook for those assets. During a big irrational market crash it is possible to buy really good businesses for a lot less than they are worth, based on the earning power they will have into the future.

Offcourse in a big market crash there will be value everywhere, so you would be looking at the big stuff like the banks, miners etc. But there will be super value in the smaller companies even more so. So you will want to be looking for the following.

- Great businesses, that will generate earnings throughout a recession
- Little or no debt ( even a great business can be brought down in a credit crunch if they have to much debt)
- Good management,
- low price, compared to the earning they generate.

 

[db94]

Buy whatever you think will recover best. Bank stocks are usually good but not always. I'm thinking the 1987 crash when Westpac went from Australia's biggest bank to the verge of bankruptcy. Banks will be hammered if the next crash is accompanied by a collapse in real estate prices. Miners might be good if it looks like China will ride it out, but I doubt it, and China may well hit the wall first if its own dodgy banking system collapses. Traditional safe stocks - utilities, big telcos, etc. - are a better bet, especially if they pay decent dividends and interest rates are zero.

But the problem of buying in a market crash is picking the bottom. Buy at the bottom and just about anything is good buying. Buying in, say, the March-May 2008 recovery when it looked like the worst may be over, would have been disastrous given what happened over the next few months.

And if you're waiting for a market crash to buy, well, odds are it won't happen. Though you'd think with QE coming to an end, overheated US (and therefore world) markets will deflate, if not burst, and some good buying might be coming up. Looking at the stellar price of bank and retail stocks in Australia, this is a good time to sell, not buy.

this is probably the hardest part. easy to look at the returns from the bottom to now but chances are you wont pick the bottom

 

[tinhat]

Do people here believe that the often sighted axiom holds true in general in a crash - that the small stocks are the first to crash and the last to recover?

So, looking for general characteristics in stocks to pick coming out of a crash - assuming that the market overshoots in both directions - income stocks are probably the first to recover?

When I think of 87 and 08 in both cases hot money flowed. In 87 it flowed straight into a property boom. In 08 it flowed into commodities and mining (remember in 07/08 in oz interest rates were high and were kept high by loose fiscal policy through the cycle).

The old adage of follow the money might be worth something.

 

[Smurf1976]

Sound, solid businesses which can ride out the recession (or better still, are largely unaffected by it) and which pay dividends.

Buying after a crash you'll get a very good dividend yield on your capital with good prospects for share price growth in due course as well.

I don't have a bias toward any particular industry or size of company. But it's got to be a profitable business with a good track record and which isn't likely to go broke amidst the crisis.

I keep a list of companies I'd buy shares in if the price fell sufficiently. Whilst I'll likely never end up owning shares in some of them, at some point there will be a significant market decline (history says so.....) and there's an opportunity.

As for the timing, I won't be trying to pick the exact bottom as such. Just buying when prices have fallen to a point that makes it a good investment and which seems to be somewhere in the broad vicinity of a bottom.

 

[robusta]

this is probably the hardest part. easy to look at the returns from the bottom to now but chances are you wont pick the bottom

If you average in probably shouldn't be too hard to get within 10 to 20% of the bottom. Returns would also improve if Value Collectorss criteria was used.

 

[Valued]

If you average in probably shouldn't be too hard to get within 10 to 20% of the bottom. Returns would also improve if Value Collectorss criteria was used.

The problem with averaging in is you don't know when it's going to stop. You take a 10 - 20% loss and is that the end of it? That sounds like a lot of money to lose. I would assume you would need large capital to be able to continue averaging down. Warren Buffet does it because it makes no difference if he loses 50% in one year only to make back a substantial return in the next 5 years, far more than if he didn't do it. Can you afford to lose that much of your capital though? I dare say if you had billions of dollars, you could live the same life style on half as many billions. If your trading capital is even on the large side, like a million bucks, can you really take a 200k loss? What about a 500k loss?

Certainly past writers on the subject have stated you can pick market bottoms. There is no publicly available proof for some of these concepts and further fundamental analysts are not aware of them so you won't see it in news reports. Examples are Elliot wave (which may or may not exist, depending how you even count the waves), volume analysis and Dow Theory. Obviously with Dow Theory you wouldn't actually be using the Dow Theory based on US Rail and Industrial averages! But there are aspects of theory you could use that supposedly can pick market bottoms.

You could also wait until Warren Buffet starts buying then just buy whatever he does. The problem with that is he might 1. buy all of whatever it is and 2. get some deal that is better than you could get.

 

[sinner]

IMHO

It makes no sense to buy during the crash when volatility is high and rising.

Optimally:

* Wait until volatility is high and declining
* Scan for stocks making highs which are higher than the pre-crash highs and buy those stocks (e.g. if you measure the move from when volatility was low and rising to high and declining is 250 days then scan for stocks making 250 day highs)

For example if you look at a monthly chart of MML (ASX) you can see it made a new high in Mar 2009 as the market tested decade lows.

NFLX (NYSE) was making new highs in Mar and Apr 2010 while the index flash crashed.

Another good example is AAPL (NYSE) which barely budged in Aug 2011 before making new highs in Sep and Nov.

Check out DEF (NYSE), the Guggenheim Defensive ETF which uses this strategy combined with fundamental factors.

 

[cynic]

Sinner,

I'm sure I am not alone in saying that I've been missing your postings and analysis.

It's great to see you again!

 

[cynic]

Generally I do not trust my analytical techniques during a crash.

My preference is not to catch falling knives whilst rearranging deck chairs on the Titanic, but to wait until the dust has clearly settled.

I'm not concerned about missing the bottom provided that I catch some decent chunks of movement somewhere between the bottom and the next top.

 

[galumay]

I would just buy more of the same, good companies which meet the criteria I have set as my FA strategy. Not really interested in trying to time the bottoms, I am buying for the long term investment anyway so if the market falls futher its of no concern to me.

I suspect choosing what to buy and when is much more involved for TA's and traders, buying too early in a falling market would no doubt leave them with sleepless nights!

 

[IFocus]

As title says a market crash happens like 08-09. What shares would you purchase?
Banks? Blue Chips?

We all seen what happened to CBA during and after crash in 08.

What are your picks?

Any of the blue chip dividend paying stocks particularity those that give high franking credits and you are confident in the business that they are not exposed to leverage debt.

No harm in being conservative in the middle of market chaos.

Have a couple of friends doing this since the 90's and they have both made a fortune over the years.

Caveat is its really hard to do, that is to buy when the world is screaming sell cause its all going to end and going to hell in a hand basket.

 

[So_Cynical]

For what its worth...i noticed in the 08/09 crash that it was the small and micro cap single commodity and single revenue stream stocks that seemed to take the hardest hits, of course the explorers that burnt money and had no revenue were hit the hardest, usually over 80% mostly around the 90% mark.

I remember thinking at the time that it was probably smarter to buy the bigger stocks that had assets and cash and some revenue, so that's what i did. TRY LGL MDL ENE SUN ALL CPU ILU VRL CSL PFL HDF KSC, Still holding those shares in a few of em.

 

[lawnmower79]

If you were to buy stocks during a recession, you'd want to put your money in Defensive stocks and industries. These typically are not affected significantly by a downturn in the economy. Some examples would be food and pharmaceutical industries.

There are 5 asset classes that you can invest in:

- Stocks
- Bonds
- Real Estate
- Currencies
- Commodities

Stocks, Bonds and Real Estate tend to do well in a booming economy but fare badly during a bust (recession). During a recession, Currencies and Commodities tend to perform well. Currencies refer to things like Money Markets and term deposits if you don't want to trade foreign exchange. Commodities that perform well during a recession include gold and silver.

Figuring out which cycle we are in (boom or bust) and how much longer we have left in this cycle is the hard part.

 

[Craton]

<snip />

Figuring out which cycle we are in (boom or bust) and how much longer we have left in this cycle is the hard part.

The Economic/Investment Clock might help, several variants, here's a couple.





Regarding buying in a crash, stocks can take years to find the 'absolute' bottom in a bust and years again to recover those losses. Even CBA took several years to reach it's '07 peak after the '08 crash but yes, a crash is always a good time to start bottom feeding, especially in quality stocks.

 

[lawnmower79]

The Economic/Investment Clock might help, several variants, here's a couple.

View attachment 56572

View attachment 56570

Regarding buying in a crash, stocks can take years to find the 'absolute' bottom in a bust and years again to recover those losses. Even CBA took several years to reach it's '07 peak after the '08 crash but yes, a crash is always a good time to start bottom feeding, especially in quality stocks.

Wow very useful data, thx for the pics.

Although it's still not easy to interpret even with this diagram. Right now, are we still in the "Hesitant Uneven Recovery" stage or the "Strong Recovery" stage or the "Boom" stage? My guess would be the "Boom" stage...though it certainly doesn't feel like one