Stocks that won't shock - Is now the time to buy?

[chilliaa]

Bill.L

I got the message the first time.

So I guess the returns on selected shares could be above 20%

Any hints on what to buy?

Cheers

If you really want to take a bit more speculative risk, you can adopt the theory that what goes up goes down and what goes down goes up.

Thus look at those stocks that has fallen the most over the last year, eliminate any stocks that are high probability bankrupcy plays, and buy a spread over say the top 100 fallers. Given that you can only loose 100% in any particular stock but potential upside is unlimited, you may do well.

By the way i dont have the balls to do something like this. But its something like the 'dogs of the dow' theory.

 

[BV]

chillia

Good analysis, thanks

I am actually bullish on the engineering/construction sector because as you know the infrastructure fund hasn't been spent yet and all states have projects on the pipeline.

I am also not convinced that the resources sector is dead.
I'm suspecting that China is using their iron ore stockpiles to reduce demand therefore bringing down prices and have now got to the next stage where their steel mills are demanding a cut in iron ore contract prices.
We shouldn't be worried, I think the fall in our $ will insulate our miners from a reduction in profits.

The finance sector should continue to do well because lending profits are high, our property markets are being pushed along and company debt should also increase because company growth can only be achieved by increased market share or by acquisition and seeing how cheap some companies are atm the later is very appropriate.

Cheers

 

[chilliaa]

Dont get me wrong, im not forecasting doom and gloom.

But when looking at shares, if you want a 'share tip' you need a share that is going to have a story to go along with it. That story must be believable by many people (the more the better), and there must be some financial measure (not necessarily profit, just a financial measure, for example in the dot.com boom it was sales increases, for the resources it was commodity prices). Their must also be a warm and fuzzy feeling around the story (dot com boom, internet is going to change every facit of business, resource boom: 1 billion chinese urbanising and exporting).

So all im saying is that i cant see any major catalyst at this point in time that would create another 'story'.

In regards to the resource boom, i dont have any strong opinion on whether it will continue or not. I agree with you that the current downturn in prices could just be a result of the chinese winding down excess stock levels. But even if this is true, it may just stabalise resource prices. The problem is that the recent area of easy credit had a huge multiplier effect on trade conditions. Even when credit conditions stabalise this multiplier effect will have been reduced. Hence the increase in demand for resources must also be reduced (i emphasise here the rate of increase). Against this backdrop you have increased supply of resources comming online because of the recent boom.

I believe in the China for longer strategy, but not necessarily as a straight upwards boom, like any economy they will get booms and busts, but over a 50yr viewpoint i think China will become the dominant world country.

How does this play out for resource stocks:
This is a very difficult question to answer. On one hand you have the dominant resource players (in Australia BHP, RIO) that have already made excessive returns for two years. This will serve as a very nice buffer in the event of several 'hard' years in the future. Especially BHP which has got a massive warchest. Even if resource prices trend lower for a while, BHP can use its warchest to buy out weaker players in the market at very reasonable market prices.

Given that share prices have already corrected significantly for BHP and RIO, one could argue that they now represent long term value plays. They are starting to build a margin of safety where even if the 25yr long term upswing in commodity prices fails to be as strong as people expect, BHP and RIO could still make satisfactory returns for shareholders.

 

[BV]

Chilliaa

Good points, thanks

cheers

 

[charttv]

Hi all,

Just as a little hint, when the all ords or it's equivalent has fallen over 35% in the last year or so, into October, in the last 130+ years, the return in the next 5-6 months has been +20%.

But of course that is just history.

This time will be different.

bye

Good point...i've noticed this trend over the last few years. Major low in Sep/Oct before rally into Mar/Apr

for example

ASX 200
Oct 1999 2722 low
Mar 2000 3276 high +17%

Sep 2001 2882 low
Mar 2002 3500 high +21

I ran a study a few years back that found that December had been an up month for the ASX 200 over 80% of the time though the way the markets are at the moment I wouldn't be counting on anything.

 

[davewill]

an optimistic share thread?
i started buying back in the market last month, so am sitting on some losses. my plan was to buy selectively over a 6mth period without gearing. with rates going down i will decide about the gearing mid to late next year.
dave
ps WOR seemed good value to me at $25 ... must be bargain now at 15
(please dont take that as a recommendation)

 

[Sunfish]

ps WOR seemed good value to me at $25 ... must be bargain now at 15
(please dont take that as a recommendation)

I'll say the same: please dont take (this) as a recommendation but drill rig support will recover after the oil companies themselves come good, after the price of oil.

 

[BV]

Sunfish

I also sense bargains out there but...
since I started this thread I did some further research and I'm now not convinced that an imminent
and long lasting recovery is around the corner.

Therefore, unless we are looking for "buy and holds" I suggest we keep our hard hats on for a while longer...

 

[House_Keeper]

Sunfish

I also sense bargains out there but...
since I started this thread I did some further research and I'm now not convinced that an imminent
and long lasting recovery is around the corner.

What was that research?

 

[Sunfish]

What was that research?

Can't speak for BV but I listen to hours of commentary on the net every weekend. And read a lot.

I don't believe reading one newsletter a week by your friendly GURU cuts it as "research".

 

[BV]

Can't speak for BV but I listen to hours of commentary on the net every weekend. And read a lot.".

Same here.
I also watch news and commentary of foxtel and have a few contacts in the industry as well.

None really knows what will happen but the general feel is that we will have more of the same for a while longer because the fear is still out there.

People are still switching their super over to cash...
Even the super funds are hoarding new cash that comes in and are not buying new shares as they should. I guess it will take time for confidence to come back to the markets.

I am not worried, I think it's time to start building up my share portfolio picking up selected buy and hold stocks.

 

[House_Keeper]

Switch your super into cash now Far too late, definitely fear-driven decision making.

The mood of the market is reflected in the media, but that's not a leading indicator.

Even if we were at the bottom (or if we had passed the bottom already), it will be a while before the media acknowledges the change of mood in the market.

The type of stats mentioned before in this thread seem to indicate that we should be close to the bottom.

That's not always a good reason to try to second-guess the market though... But it's enough of a reason for some (including me) to take a calculated risk.

Time will tell.

Cheers,

 

[BV]

Switch your super into cash now Far too late, definitely fear-driven decision making

I totaly agree, I was watching business channel on Sat (or Sunday) and they had a panel of experts answering questions on super.
I couldn't believe what I was hearing from some people who were ringing up.
I guess when someone is near or in retirement and their super goes down by 25% in 1 go they have a reason to worry and to switch over to damage control mode...

That's not always a good reason to try to second-guess the market though... But it's enough of a reason for some (including me) to take a calculated risk

same here, I won't be using borrowed money anyway

 

[Strannik]

if i bought what i wanted to buy couple of days ago i would have made 50% gain by today
gotta get my trading account opened sooner

 

[Nathan]

a good choice would have been naked shorting AFG

 

[Sunfish]

Switch your super into cash now Far too late, definitely fear-driven decision making.

How do you know it's too late, at least on a short term? Have you ever been "fearful" yourself? If you saw a qtr mill melt away to $5k, would you be so sanguine?

 

[chilliaa]

Many losses so far will have only been paper losses. So long as the underlying investments were in good shares, then they will go up in time.
Thats why its very dangerous for inexperienced investors to keep checking their 'market' value.

 

[Stu]

Slightly off topic, but any recommendations for a good online broker?

Cheers Stu

 

[House_Keeper]

How do you know it's too late, at least on a short term? Have you ever been "fearful" yourself? If you saw a qtr mill melt away to $5k, would you be so sanguine?

Nobody knows for sure what will happen tomorrow.

We can only make a guess, usually by studying history. History tends to repeat itself although not exactly in the same way. The type of historical stats mentioned before in this thread seem to indicate that we should be close to the bottom. That could be wrong though, it's only a guess. Still, it seems likely, but far from certain, that we are close to the bottom.

Everybody experiences fear. It's how you react to it that makes the difference. Whenever I let fear drive my trading decisions, results have been awful. Now I do mostly buy & hold, but I make sure that my gearing is low enough so that I am not forced to sell in a market downturn. It is a conservative, boring type of strategy. My portfolio is down this year by a lot, but I am still in a position to benefit from a rebound.

It's easy to say now that I should have sold more earlier. But to convert to cash now based on gloomy media stories that you allow to drive your decision making is not a great idea IMHO. You really need to take a bit of perspective before making such decision.

Cheers,

 

[Sunfish]

But to convert to cash now based on gloomy media stories that you allow to drive your decision making is not a great idea IMHO.

I just don't make decisions based on popular media. But most of the smart guys are saying that we haven't touched bottom yet. Admittedly they are Yanks and the US$ looms large in their thoughts.

If you saw a qtr mill melt away to $5k, would you be so sanguine?

When I wrote this I was specifically asking about psychology and whether your nerves have been tested yet. I would never take it upon myself to advise others to "hang tough".