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The good times are over?

Discussion in 'General Investing Discussion' started by crc_error, 9th Jan, 2008.

  1. crc_error

    crc_error The Rule of 72

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    With the market taking another battering, would it be safe to say the boom is over?

    My UBS property fund has almost wiped out 2 years of gains in the space of 2 months.

    The all ords are still high, and I would say we have plenty of room to fall in that index.

    What are peoples feelings here? Where is your gearing at? Are you taking any action for tour new outlook for 2008? Lowering LVR etc? Or closing up shop and going into fixed interest?

    Now all we need to see is residential property getting spooked and then we will be in trouble.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    In my mind, the markets are beyond spooked ... they've been slapped around one too many times ... and they know there is more bad news on the way. I think the herd has gone beyond "duck and cover" and is into mass retreat mode now.

    I'm finally convinced were well into bear territory and we don't have any more magic bullets left to keep ourselves safe.

    I'm battening down the hatches (I never fully recovered from being caught with my pants down during the correction late last year) - my LVR is just too high for me to ride this out.

    The only question for me will be how much of my portfolio I can afford to hold on to or whether I have to move all of it to cash (I'm watching the signals very carefully - not every fund is terminal right now, so I might be able to hold onto some of them).
     
  3. crc_error

    crc_error The Rule of 72

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    Sim, so your considering moving into fixed interest? wow! thats pritty drastic move.

    I'm sitting at 71% LVR and any further falls will wipe me out!!

    Gearing really kills a portifilo during these corrections. A ungeared portfilo will ride this out as there is no interest commitment.

    The problem with selling down and moving into fixed interest is you will get a large CGT event as well.
     
  4. voigtstr

    voigtstr Well-Known Member

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    platinum asia is looking ok still, whereas cfs wholesale property has taken a real beating because of centro and others. Its only approx 10% of my super, but that one fund has dropped something like 27%.

    This year (once the debts are finally squished) we are using ING to save for the next house deposit. We have about 30k in equity we could use to invest in funds, but we might hold off until we can use the distributions to pay rental shortfalls (ie once we buy the next house)
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I'm selling down out of necessity - my LVR was already high when the correction hit last year (bad timing on my part), and I've been riding the buffer zone ever since.

    I'm nearing the top of the zone now, so I'm liquidating some funds, and moving others to a cash fund with higher LVR since I have a large fixed interest loan that I don't want to break just yet.

    Some of my funds are doing surprisingly well right now (unlike during the correction last year when everything went down) ... so I'll try and hold on to them.

    CGT isn't a problem for me - I have capital losses to offset from a bad business deal a couple of years back.
     
  6. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I'm not touching the funds in my SMSF - there are no gearing costs to worry about and I have 30+ years left before retirement, so I'm happy to let those funds do their thing.
     
  7. crc_error

    crc_error The Rule of 72

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    funny enough I bought up platinum ASIA just before this correction, and its currently showing a small profit.. so I guess this shows the need for proper diversification.

    LPT used to be 50% of my portfilio but with the newly added funds over the last 2 year its only 10% now.. with 7% in overseas LPT which has also been hit.

    ING is looking like a great investment!! lol might be the out performer in 2008! lol
     
  8. coopranos

    coopranos Well-Known Member

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    Good ol' property eh!
     
  9. MichaelWhyte

    MichaelWhyte Well-Known Member

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    I'm taking a hammering too...

    I just got margin called by ANZ and had to pump $27K cash into it to just get me back into buffer. They want another $32K to get me out of margin call territory but have allowed it to ride until the 28th Jan to see what the market does first.

    I've got a decent cash buffer but it is still nasty ploughing it into the margin loan to keep the investment afloat. My Platinum Asia is still slightly positive since my buy in, but my Lincoln, JB Were Resources and Challenger China are all in the red. I'm still upbeat on resources so will try and ride this out. But my LVR is a touch under 70% and the new diversified portfolio only allows to 65% odd. In fact, when they diversified they over-bought and actually bought me back in at margin call levels. Since then its fallen $40K in value.

    Lets hope Ben has something positive to say tomorrow...

    Cheers,
    Michael.
     
  10. lorrimer

    lorrimer Well-Known Member

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    I think the fact that even you are spooked Sim is a positive for the market.
    When the herd give up on the market, it's normally the time to move back in.
    For me that time is normally when I can't even bear to look at the internet or TV in case I have to see the financial news, and that time is now.
    I don't think we are as dependant on the US economy as many think, and so long as Australian financial institutions are not more exposed to the Sub- prime than we are being told, then we should be able to ride this through.
    Don't forget that Asian economies are booming, the Australian economy is booming, we are more productive than ever before and demand is increasing due to what is happening throughout asia.
    Also don't forget the big players love to drive us little guys out of the market, that's how they create value in an efficient market. I've seen it happen time and time again.
    At the moment it's all doom and gloom. I hope I'm not tempting fate, but I wouldn't be at all surprised that soon we will start hearing how the market is now fairly priced, how some stocks have been drastically oversold and that there are some real bargains on offer.
    The more that go short on this market, the more chance that one day soon we will see a big rally as they are caught out by some positive economic news and they have to sell to cover their positions.
     
  11. MichaelWhyte

    MichaelWhyte Well-Known Member

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    lorrimer,

    I agree. Hence why I'm trying to ride this out. I basically can't see too much more downside for the ASX and in particular resource stocks.

    Have a look at this:

    CVRD cuts shipments, iron ore prices expected to soar | smh.com.au

    And the current contract prices put BHP at $40. So, what does a 50% lift in contract prices do for the BHP share price then?

    I really can't see too much more downside unless the US really does dive into a massive recession and the much touted de-coupling of China is all smoke and mirrors.

    Just can't see it, but then I am just a blind punter like the rest of us here. ;)

    Cheers,
    Michael.
     
  12. crc_error

    crc_error The Rule of 72

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    Good points. I'm currently trying to ride this out. As yet I have sold nothing! And I hope to keep it that way. I'm writing covered calls, which are giving me cash flow to fund my margin interest.

    I also hold LGL which is up over 6% today.

    I'm just spewing I'm not in a position to be buying up as now is a great time to be doing so..

    I've said this before, and I'll say it again "buy when there is blood in the streets"
     
  13. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I wouldn't say I'm "spooked" as such ... I'm reacting to my personal situation (made bad by some bad decisions made at the end of last FY).

    Currently I'm only pulling the pin on the funds which have hit my trigger points (which is generally when they are in a downtrend and pass below and stay below their 200 day MAV - which several of my funds have just done).
     
  14. crc_error

    crc_error The Rule of 72

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    Sim, can we ask what was those bad decisions? were they investment decisions?

    Maybe we all can learn from ones mistakes..
     
  15. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I won't go into full details - but suffice to say that due to my personal circumstances at the end of last financial year (mostly related to my tax situation), I drew down on my margin loan to pre-pay the interest and I also made other investments which would help minimise my short term tax (with the goals of long term capital growth of course).

    The main problem (other than breaking about 4 of my own investing rules) was thinking that our strong economy would see our markets continue strongly for a further 12 - 18 months before they peaked ... giving me plenty of time to restore my margin loan to a reasonable LVR. I allowed myself to be lead by "expert" commentators into taking more risk than I should have.

    Of course, I was caught with my pants down during the correction last year, and my margin loan has never really recovered - I've been in buffer ever since.

    It was simply a mistake of over-extending my loans and thinking that I could predict the market ... stuff that we tell people not to do every day - I got cocky and thought I could get away with it and now I'm paying the price.
     
  16. Tropo

    Tropo Well-Known Member

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    Party was over (IMHO) when DOW ‘refused’ to stay above 14 000 level.

    I would say that all those who still think that market is the one way street may suffer quite a bit in the future.
    As I said before, not having defined your stop loss/exit level is like jumping out of airplane without a parachute because you have heard that people occasionally survive falls from 4,000 meters.
    You will NOT survive in the market without basic techniques.

    There is still a possibility that DOW may fall down another 1300-1400 points from current level and XJO another 500+ points.
    In the meantime I would recommend you to subscribe to: “Technical Analysis of Stocks and Commodities” and “Barrons” – both of these are available on-line.

    Another question which should be raised in relation to the current market condition is what effect US recession may have on Asia and OZ.
    :cool:
     
  17. MichaelWhyte

    MichaelWhyte Well-Known Member

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    Given current market sentiment, I hought I better do some quick math:

    If I injected the full $130K remaining cash on hand to prop up the margin loan and maintain my LVR at the 65% max for my current mix then I could support a further 21% drop in my holdings from the current 6100 odd level to a level of 4800 odd.

    So, it will take a serious "correction" before I run out of cash. I don't think we'll see 4800, but anything could happen I guess... Obviously, I anticipate that I have a sound investment that will deliver strong growth in the mid to long term or else liquidating the asset would be a better strategy. For me, I'm holding.

    Cheers,
    Michael.
     
  18. lorrimer

    lorrimer Well-Known Member

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    The problem is that if you had set your stop loss at say 8% you would have sold out about three times over the past few months. That may yet prove to be a good thing, but you wouldn't have been feeling too happy when the market promptly rebounded on each occasion.
    On the matter of the effect of a US recession on Asia and OZ. One could make the argument that the decline of the US economy will only serve to hasten China becoming the worlds major economy with the rest of Asia benefiting as a consequence.
    The sooner the world detaches itself from being dependent on the US the better IMO,
    I'm sick of the lies and deception coming out of the US in recent times.
     
  19. Tropo

    Tropo Well-Known Member

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    There is a lot of ways to set stop loss.
    Percentage value is only one of the method not necessarily the best IMHO, but in a volatile market you should expect to be taken out more often then usual unless you change your system and set bigger stop loss range.
    You should be using different tools for different market conditions or stop trading/invest and wait for your conditions to come back.
    There is nothing wrong to buy back your position if sold prematurely.

    I do not think that recession in US may help China to become the world's major economy, but I am not on the position to discuss this (there is enough “gurus” talking/writing about it).;)
    As always - time will tell.
     
  20. Nigel Ward

    Nigel Ward Team InvestEd

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    Surely smart cookies like you two have only run high LVRs in the margin loan with cash parked on the sidelines to meet margin calls?

    Cheers
    N.​