Market Meltdown: I can smell the fear from here

An irrational smell is permeating global sharemarkets at present and it is the bitter smell of fear.


The "Sage of Omaha" Warren Buffett, is a popular
Google search in times of volatile markets, from people
seeking his advice.


Hits today(like they always do on days like these)on the Share Investor Blog are at an all time record and they are mostly from America and they are googling such things like "what would Warren Buffett do?" and lots of related Buffett searches, "market crash", "market meltdown" and "market volatility".

People are seeking reassurance as to what they should do with their stock holdings.

As much as I like to get new readers I'm a bit concerned that this frenzy is gaining a momentum that the current state of global economic growth doesn't deserve.

Now I'm not the right individual to ask when the "bottom" is going to be reached, because I simply don't know but what I do know is people are selling irrationally and they are going to regret it months and years from now.

Allot of the current sell offs are being triggered by margin calls and by traders shorting stocks, that is, betting that share prices will fall, and it has had a momentous snowball effect so far and will probably continue until the buyers come out of the woodwork for some bargain stocks.

Few of the New Zealand companies beaten down so far are in danger of serious real business difficulties and so too global companies, so the disconnect between reality, and the psychological schizophrenia that mums and dads are facing by selling their company holdings at a serious discount is a big one, and only getting bigger as stocks tumble like dominoes.

Don't take this as an endorsement to go out and start buying but I have $NZ50000.00 ready to spend on top ups to my portfolio and I'm feeling like my wife when she goes to the Thanksgiving day dress sales in Dallas Texas, very excited!

So lock up the razor blades, tip the sleeping pills down the drain and use that rope to tie up the bear outside, 'cause its goin' to get turbulent.


Related Share Investor reading

Warren Buffett's The Intelligent Investor
Global Market's dropping and your portfolio
Global Market Meltdown: What is Warren Buffett doing?
A sensible approach to global market volatility

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Related Amazon reading



The Origin of Financial Crises: Central Banks, Credit Bubbles, and the Efficient Market Fallacy (Vintage) by George Cooper
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c Share Investor 2008

A sensible approach to global market volatility

Sell, sell, sell!!




The NZSX 50 was down 48 points today and is at its
lowest point since November 2006. Other global indexes
have also been markedly negative since Jan 1.



New Zealand and global sharemarket investors seem to be telling their brokers right now.

Global indexes have suffered from a New Year hangover that has seen values drop by an average of around 5% since January 1.

For sure there are underlying issues surrounding sub prime loans affecting credit flow and therefore investment, high inflation and oil prices but hang on a second, is that the end of the world?

Investors have to ask themselves why they bought their stocks in the first place and if the only criteria that has changed are the current macro conditions that currently exist and they will have no direct, disastrous affect on the fortunes of the company you have plunked money into, then following the sheep to your broker's door is only going to make him richer in the long run.

Why don't you follow your own research and perhaps stock up on companies that you already have shareholdings in?

Most serious wealth is created for investors when they buy assets during down periods such as the present one.

The worlds most successful investor, Warren Buffett, uses this very approach to add to his ever increasing large holdings and enter new businesses and it is one backbone to his investing style that has done him well.

The tricky part is of course choosing the right time to buy in a declining market and that is probably the hardest part of "picking a bargain", because the share price could be even cheaper next week, month or even year but if you can get shares in a good company that you already own cheaper than your initial purchase then you are doing well.

If you are feeling nervous at all about current market volatility on the downside and you are so worried that you cant sleep because your portfolio is losing value, then you should either stop checking stock prices every minute or simply get out of the stockmarket, because it isn't for you.

The market is risky and continued stock price increases are not going to be the status quo and if you have a short term view of investing then you are going to be continually disappointed and worried!

I think global markets are set for continued negativity for 2008 and a slow recovery in 2009, until we see the full exposure of the sub prime fallout mid year.

Until then just hang on and maybe even get the checkbook out little bears.



Related reading from Share Investor

Research, research, research
Current Credit Crunch a blessing in disguise
Leaders must come clean to restore trust in credit market
Fear and Greed are lovely things
What is Warren Buffett doing?
Global credit squeeze: There is no free lunch
Panic! Wot Me?
Global Markets dropping and your portfolio
Watch for dead cats bouncing




C Share Investor 2008

Global Market Meltdown: What is Warren Buffett Doing?

As we approach Global Stock Markets, the volatility that surrounds them can create opportunities for making a purchase rather than a reason to sell.

I am reminded of what Warren Buffett looks for when buying companies and the cheaper share prices that we are now experiencing are making one of Buffett's tenants of investing more focused as the markets get lower:

His investment criteria included companies with "good returns on equity", little or no debt, "simple" businesses that he could understand, and consistent earnings, Mr Buffett said in his latest annual report. (Warren Buffett 2007 Berkshire Hathaway Annual Report)

Sure , Buffett is talking about companies that he buys having a good return on equity as an operating business. As an investor in cheaper shares though one can use falling share values to buy good companies and as an investor make better returns on your "bargain" purchase therefore making your returns all that much better.


Buffett has been hoarding his cash like your grandma over the last few years and many potential targets would have revealed themselves over the last few weeks of turmoil:

Warren Buffett says the current market chaos and turmoil will probably create buying opportunities for him and Berkshire Hathaway:
"You get more excited when there's a lot going on, you can't help it. And frankly, it will probably present more opportunity to us because when dislocations occur things get more mispriced and that sort of thing...
"So it can be a time of opportunity. It won't be for sure, but generally speaking, when there's a certain amount of chaos in certain sections, the fallout, and its unpredictable where the fallout will be, but the fallout sometimes offers some real opportunities." (CNBC Aug 15 2007)

Shares of health insurers, steel makers and department stores are down by as much as 18 per cent than they were in May, when Buffett said he would "figure out a way" to raise up to $US60 billion for the right deal. WellPoint Inc, Nucor Corp, Kohl's Corp and dozens more companies are now closer to meeting his investment criteria.

He has disclosed purchases a few days ago that his company has bought a new stake in Bank Of America and increased his stakes in Wells Fargo and Bancorp in the last quarters SEC filings.

As these companies have been beaten down over recent times you might expect the Sage of Omaha to be sniffing around them again.

Warren Buffett's history shows that he has done well during market turmoils as he tends to be doing the opposite to everyone else.

He bought beaten down stocks during the 1970s bear market lull and it paid off handsomely as the 1980s began a bull market not seen since the likes of the 1920s. His mentor Benjamin Graham made money off the 1930s bear market by doing exactly the same thing.

I guess we just have to learn from history. Markets have always had these volatile "corrections". Currently most investors seem gripped in the fear mode and it looks unlikely that the slide will be ended until some certainty comes back to the market.

Buffett and his mentor Benjamin Graham were able to ride these market blowouts and actually make it a positive. Their history and reputations as value investors are largely made during these times of turmoil.

Take a lesson from Warren. Keep cool, keep your head, keep your shares(if they were good ones to begin with!) and look for the bargains that will come.

c Share Investor 2007