If you took note of the mainstream media at the moment (or at least the headlines) you'd think it was all over for the sharemarket bar the shouting. But how are ordinary investors reacting to the current drama on the market?
On Thursday 16 August more than 550,000 equity trades took place, nearly double the 280,000 average number of trades made during July. Many of them were stop-loss triggered transactions, while others were offloaded by long term shareholders who have lost the stomach for the volatility. There were no doubt also plenty of newcomers who decided after last week's rout that the sharemarket was a mug's game after all.
But not everybody is heading for the door, or even thinking about it. Many ordinary investors might be nervous and confused, but they're hanging tight on the conviction that whatever the sub-prime fallout, there are not enough good reasons for this market to continue to dive. Many have been through previous corrections and a crash or two, and have learnt that there is opportunity in these turbulent periods - as long as you have the means and the faith to hold out while others are running scared.
IT manager Pradeep Agrawal, for instance, was badly burned in the 1987 crash after he had borrowed $50,000 to invest in "anything that looked promising." One company he invested in, Strategic Minerals, fell from 85c to 5c in a matter of weeks. "I would have considered ‘Fly-by-Night' diamonds if someone had floated it," he says. The experience taught him to be more picky about what he invests in, and to diversify. He has never sold any of the 100 or so stocks he has accumulated since. And yes, the current drop is "uncomfortable', but it's not going to prompt him to start selling now. In fact, after having sat on the sidelines for the past couple of months in frustration at an overpriced market, in the past couple of weeks he has been back buying - QBE, Transfield (TSI), and BHP. "And I plan to buy few more once the market stabilizes," he says.
Helen and Duane Thomas, both 31, came into the market more recently. They first started investing in the sharemarket in 2001 and stumbled straight into a two and a half year bear-market. The mediocre returns on their initial investments didn't stop them ploughing around $30,000 of savings a year into buying shares. "We realised later what a positive thing it was buying those stocks so cheaply," Helen says.
Since then they've sold their home to invest more in the market and have built up their portfolio to nearly $1 million. That's made for some nerve-wracking days over the past year when its value has dropped by $40,000 or more. But even the more than 10% drop in the sharemarket over the past few weeks hasn't prompted the Thomases to cut and run. "We won't be selling any shares, unless the companies' fundamentals are poor." In fact, the Thomases are on the look-out for strong companies to buy at what they believe are now bargain prices.
Full-time investor Leong Chong has lived through a few ups and downs in the market. During 2002 and 2003 he propped up the value of his shrinking portfolio by writing covered calls. These earned him a premium, which along with dividends kept his portfolio ticking along. This correction is a bit more severe than he had first thought, but he's confident that means opportunities will arise in a matter of time. "In numerous stocks, relative to fundamentals, the correction seems to have gone to far," he says.
Among Sam Ghoreyshi's first investments back in 1996 was the BT Pacific Basin fund. Convinced the Asian growth story would go from strength to strength, he borrowed $10,000 against the equity he'd built in his home and combined it with a margin loan of $30,000 to invest in the fund. The fund's value promptly dropped in by 50% in the Asian crash. "After that I decided I'd stick to assets I'd researched myself," he says, building up a portfolio of more than $300,000 in the process.
Emotion is the killer in a market as volatile as this one, says Ghoreyshi, who is now a wealth strategist with MoneyClip. "It's important not to listen to the voice in your head. Just look at the fundamentals." Ghoreyshi takes some heart from the knowledge that it took the market 55 days to recover from the Asian Crisis and 26 days to recover from the market downturn following September 11 2001. He's also hung on to a copy of the Financial Review from August 2005: "it basically said that market run was dead!" The market has put on another 28% since, even after last week's dumper.
But how do you know when to buy back in? If you're a long term investor it's easy - buy when the fundamentals on a company you're keen on are looking good. When a company is putting out strong earnings reports, its PE ratios are low and yields are up, the story is looking convincing - even if a fickle market drags it down even further on sentiment.
Or you could do as one wise commentator put it: "the time to think about buying is when everyone is selling on the conviction that tomorrow will be even worse than today." By CompareShares.com.au – for more articles like this click here. CompareShares.com.au is Australia’s pre-eminent news and investing site for investors and traders, covering shares, superannuation, property, financial planning strategies and more.
21st-August-2007 |
