Friday, August 10, 2007

Global Markets Dropping and Your Portfolio

Global share markets continue to fall and the charts are looking like a man who hasn't taken his Viagra after riding a rollercoaster for a few weeks.

Nervous nellies and those with short term investing horizons are bailing out quicker than you would have to bail out the Titanic.

There is talk of a credit squeeze, institutions freezing funds to stem a flow of cash and Federal and State banks increasing liquidity as a result.

The markets have had a good run of late, especially Asian markets and China the beacon of them all. Clearly share markets are currently factoring in some sort of global economic downturn. How bad is unclear, I would agree to a certain extent with Frank Barbera about China:

"That basically leaves the Shanghai Market as the sole hold out among Global Markets. Ironic, in that the historical analogy between the US Market and Great Britain of the 1920’s seems to be holding up perfectly nearly 80 years later. Back in the late 1920’s, the US was the up and coming industrial production giant, while Great Britain was the established economic power. As it turned out, the European Stock Markets peaked in 1928 and began extended declines into early 1929. At the same time, the US Stock Market was able to shrug off the declines in other markets and continued to make new all time highs going into August of 1929. Then came the Crash, where the US Market collapsed and caught up to the European and UK Markets which by then had long since been in bear market territory down more than 30% off there highs.

Flash forward to 2007, and we see roughly the same thing happening all over again, this time with the US in the role of Great Britain as the developed economic power, and China as the rising manufacturing star. At the very last pages of this report, we update what will in all likelihood be the final version of the Global Top Out Parade for this cycle, documenting the high dates for each of the major global indices, and a wide number of important sectors. What is painfully clear is that China now stands alone with its market, the Shanghai Composite, on a “Solo Walk” to new highs. Perhaps for a historical sense this is the most fitting end, as the Shanghai market has been the speculative bubble leader over the last few years. That said, we see no way that this market is able to sustain itself with the inevitable crash in Chinese stocks still the order of the day". (Frank Barbera 7.8.07)

I am not as pessimistic as Barbera but I would agree to the extent that I think China is the Joker in the pack of global markets. How bad could it be is hard to tell but it does need to pull back. The worst part is the uncertainty. Stockmarkets hate that.

What does this all mean to ones portfolio though?

Well, if you are like me, a long term investor, with a view of more than five years then you will be approaching these volatile markets with great interest and a certain amount of glee because these share price drops represent opportunities to buy more of what you own at a cheaper price. Look at these share price drops as one of the biggest sales that you have been to !

If you have bought well in the first place clearly any price below what you paid for your company is going to be an opportunity to buy. Who the hell would want to buy when the share prices are going up?

The only decisions you have to make though is how any global economic slowdown might have material and lasting effects on the prospects of the company or companies that comprise your portfolio and when to buy more of the companies that are going to ride out any possible global economic slowdown.

I have never been good at picking bottoms of share prices so I am going to place my buying decisions on the value of the company at the time I buy and its prospects as we move away from a global slowdown.

Whatever you do though, do not follow the heard and sell. Go against your psychological urges to sell and do the opposite if you have some cash. It is extremely hard to do and something I learnt from the insane decision to sell my portfolio on September 11 2001 and again the next year following Global worries over the US share market and its dodgy accounting fiascos.

Markets returned much to those who bought at these times rather than sold.

Hang on for the next several months, it will be character building.


Related Share Investor Reading

"Mr Market" gets his groove on
A sensible approach to global market volatility
Global Market's dropping and your portfolio

From Fishpond.co.nz - Buy Toughen Up: What I've Learned About Surviving Tough Times

Toughen Up: What I've Learned About Surviving Tough Times

Toughen Up - Fishpond.co.nz



c Share Investor 2007