Hoops Rant:...For those who have never experienced what bear market cycle feels like
Quote:
Originally Posted by
xafalcon
TheNZ sharemarket make-up has been heavily skewed towards yield stocks in recent years by thegovernment sale of the power companies & air NZ. This causes/heavily contributes toseveral of your observations above. Especially
2 - Power companies pay out from fcf, allowing higher dividends
1 - As a result of 2. I can't see any lowering of average P/E unless the power companies lower their dividends.
3 - The NZ market is less exposed to volatile commodity and tech sectors thanmany other major markets, with heavy weighting towards reliable cashflowbusinesses with captive markets, so reduced SP volatility expected
The problem is that in times of caution, the NZ market still gets sold off even though business fundamentals haven't changed - the same amount of electricity will be sold at the same price regardless of what's happening in the world, the same number of houses and commercial building will be built, people will still travel to NZ on holiday and to live, the NZ economy is still one of the best developed markets in the world, the government is stable and moderate and pro-business, NZ FTA's coming into effect and increasing income.
However the basic heard mentality seems to trump all "real fundamentals". August 2015 was the same. It's just the depth and duration which is uncertain
I have experienced several Bear Market cycles..Played in a few , been clawed, mauled, made money, lost more money, lost sleep, worried, frustrated... Until I adopted TA discipline I watched my long term portfolio lose $5,000 a day for weeks on end and say that's OK (possum in the headlights..eh?)......So I have the experience to not caring being to be called a sheeple/worrywart/peamabear/Dr Doom/scaremorger
In any downturn or recession the share market is a leading indicator and triggers well before the event.....very important to remember this fact...where there's smoke there's fire...so one should not to be sucked into holding the baby in fear of being ostracised by ones own peers (sheeple worrywarts idiot stupid or just being being shunned or ignored by the herd) Sometimes a section of the passionate herd can produce anger so in mental fear you decide to follow the herd just to avoid clashing with that powerful outspoken section within the herd...however most often the followers find the powerful leaders opinions and beliefs very satifying to the point that what they preach is total true to the whole herds beliefs and will always happen..(self - fueling)
OBJECTIVE TO SUCCESSFUL INVESTING...Be totally focused and not lose portfolio capital that took years to produce...It's that simple!!!
I use TA more than FA in these uncertain times as FA is a lagging instrument and TA is a more sensitive tool...So as I'm a TA chartist which requires one to have a more insular personality I don't care about herd bullying...actually when I see it happening these last few months it reinforces my belief that the primary tide has turned bearish..This same animal herd behaviour (humans are an animal species) also happens at the other end of the cycle too when the bear dies...
The "NOW" as it is happening:...It is very difficult (nearly impossible) to pinpoint a reversal from bull cycle to bear cycle...its easy to look back in hindsight to see it but not when it is happening..Therefore over a period of many years I have been collecting "ducks" (leading indicators that correlate with corrections leading to reversals) I now have some (not many) behavioural ducks similar to those that DOW Theory uses.
...Recently..after trawling the various forums I've found strong correlations between... bullying/banning.. and the beginning/stage 1 of stock (and index) reversals so I've added herd bullying etc as a duck to my collection...
When most of my ducks line up in a row..A cyclic reversal is ready to happen..unfortunately life is a bitch and like many other Expert Fundmentalists newsletters I've read when the USA Stock Market became over-cooked 2 years ago we failed to assume the varying lagging effect of nature..for example the hottest time of the year is well after the sun has reached its Zenith yet logic (although we know it's false due to experience) should say the past its zenith is a warning for colder weather and it theoretically "normal" that cooling effect should start appearing right after that solar zenith.
Without experience..one would assume that the theoretically expected cold weather will not be too bad as it has not yet happened and as time passes and the warm weather remains it leads increasingly many to believe that the Sun Zenith/hotness theory is just a load of crap...
Which brings me to write about lagging effects and quote XAFalcons post:
I found an interesting correlation which is partially behavioural as well ....The often (not always) occurring lagging effect of Utilities stocks within the stock market (which is overall leading)..From the reading I've done within the forums (to gauge the behavioural aspect)..When Utilities start to lag in a possible bull reversal to bear People think of the "now" which is usually bullish as the economy is booming in the consumer sector....peoples behaviour naturally assumes that everyone needs these products and will always have to, and they are right to assume this..therefore a type of defensive stock mentality is formed as we will always need power to live..It's a necessary consumer item, right?
At this point I will disclose that I have been in the NZ stockmarket on/off for 43years and seen 6? lost count:) bear market cycles...so I will claim experience just like the weather example of knowing that a winter will happen and have multiple experiences what a winter feels like...
As the bear market cycle progresses the bear develops claws and after relentless number of failed stock market rallies and down waves the stubborn investors behaviour slowly changes from rosy hope to one of despair and frustration..as it become evident now to the majority of the herd that the economy has turned down with lower company earnings, some companies failing and job losses..also the vocal leaders of the herd now become negative effecting the rest of the herd,,This trigger selling and lowers momentum ...the first damaging Capitulation wave hits..at this point of the Bear Market cycle the spotlight now shines onto the defensive Ultilities and the bear attacks....The reason is, that investors now take a less rosy view and analyse the Utility companies with more scrutinity and find the Utilities have rising bad debt levels as people without jobs struggle to pay on time or renters just quitting the property and shift leaving a bad debt..Failed companies or falling demand due to product surplus = fall in manufacturing output so less power used...The flow on effect is Utility companies announce lower profits lower dividends..some smaller Utility companies may fail putting the fear of God up the defensive Investors.....and so on...The end result is that Ultilities play catch up with the rest of the market and so are eventually mauled...
At the height of the Bear market...there is usually no place to hide... even cash in the bank may not be safe...everything is down turning and capital sucking...the one place to go (Shorting strategy) is curtailed or shut down...doom and gloom for everyone even those cashed up...The cashed up investors have extra problems..the fear that their brokering company may fold and their trading accounts full of money either frozen or lost..so if they pull their money out...(which they might not be able to do).. their ability of quick trades (bear market strategy) disappears..so the market momentum lowers again and the next down wave is longer(extended).
As money evaporates within the bear market the spotlight then focuses on the banks again...depositors get skittish and if an unfounded rumour surfaces about a certain bank no matter have financially strong it is it could cause a customer stampede cause that bank to become financially unstable and temporarily restrict their customer accounts..which if its a large bank it has the potential to upset consumer demand especially the big ticket stuff such as new cars etc but also discretionary spending as the fear of becoming broke and no available credit stymies consuming spending.
Meanwhile the buy and holders hang in and it's about this time their Investment strategy starts coming unglued when a company in their portfolio that relies on consumers goes into receivership creating a permanent real loss...that they can't recover from...this causes another market downturn as it is the buy and holders turn to feel the wraith of the bear and many bail out in fear of permanent loss
So old saying goes "the bear market doesn't kick you out it wears you out"...........so why be in it to begin with?????