With the exception of 1987 and the April 2000 tech wreck, every time the Australian market has had one of those days represented on the front pages of newspapers as a “crash”, it has come sprinting back the following morning.
Today’s 6% surge in the All Ords is a classic of the genre – and very similar to what happened on October 30, 1997. Yesterday’s fourth biggest single-day fall will probably go down as one of the great buying opportunities – but it will never be as good as October 29, 1997.
Check out this piece from The Daily Telegraph on October 30, 1997, lamenting the missed buying opportunity when Woolies hit $3.60 and ANZ was available at $8 – before both rose by more than 20% in 24 hours.
The problem with a lot of journalists and fund managers is the way they simply follow the herd. The AFR quoted super funds on Tuesday gloating that the cash allocation is being increased with some saying all new contributions were going straight into cash. Surely on a day of irrational selling like yesterday, they should have been buying shares.
When things were booming, normal discipline disappeared – even the Reserve Bank super fund went overweight equities after 2005.
From a media point of view the low point of this irrational exuberance was The AFR’s front page spruiking of 20 speculative stocks on January 4.
If you had $1000 invested in each of those 20 stocks before The AFR’s kiss of death, today you would be 17% or $3413 under water, which is worse than the broader market.
Then you had News Ltd’s Terry McCrann on Today Tonight last night advising hundreds of thousands of financially unsophisticated viewers to, in summary, “keep the good stocks and sell the bad”. What sort of advice is that? You don’t recommend selling after the market has fallen 25%. That’s when you should be buying, if you can afford it.
I left home at 8am yesterday with 27 buy orders in place from the previous evening – most set at 3-5% below the closing prices of Monday night.
After a day at the Australian Open punctuated by a few radio interviews, at 5pm I discovered the portfolio had expanded by a whopping 23 shares. Oh dear, plunging another $12,000 into this market seemed a bit reckless – but at least none of it was debt-funded.
The full list of purchases is available here and today I’m feeling good about them.
I certainly didn’t perfectly pick the bottom because the collective performance of those 23 stocks by 11.30am today is a rise of 2.5% or $300, excluding brokerage.
The overall portfolio is today worth $200,918 and the paper loss is $37,052, although that loss is less than capital gains crystallised from selling down in 2007.
Go here to listen to interviews about the market meltdown on 2UE and 774 ABC Melbourne yesterday.
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