October 2018 – End of Month Update … and corrections

Slack Investor remains IN for US, UK and Australian index shares.

What a splash in the face this month was – with many rushing for the exits. All Slack Investor watched markets took the cold bath with big price drops all round. The ASX 200 index  down 6.1%, the FTSE 100 -5.1% and  S&P 500 -6.9%. However, this sudden downturn didn’t breach any of Slack Investor stop losses and he remains idle for another month on his index stocks.

It is a different story on his individual stocks though, as many took a sharp price dive and the portfolio needs a bit of re-assessment. I trade individual stocks in a different way to the index stocks and it isn’t as rules-based.

Each individual stock has the advantage that it can be assessed as a business. A breach of the monthly stop loss for individual stocks means that I have to look at each company and make a decision on whether to keep – or to ditch! The first thing I do is take a close look at the business (current price,  PE, yield, future earnings, return on equity). I then ask myself ” would I buy the share at this price? If so, I then look at the current momentum of the stock and, if it is still heading south, then I think that there is something going on that I don’t understand – and try to sell at the next opportunity.

All Index pages and charts  have been updated to reflect the monthly changes – (ASX Index, UK Index, US Index).

Department of Corrections – Part 2

The newspapers are full of scary stories about the stock market when prices take a sharp dip. Corrections are normal and just part of share trading – the market ramps up a little fast due to “excitement” and then quickly falls as people “panic sell”. Slack Investor discussed corrections earlier this year and doesn’t like to get involved with these short term trends. However, I will act if I must.

It is reassuring to listen to experienced investors such as Colin Twiggs, of Incredible Charts fame, who reflects on this most recent correction.

Truth is, there is no single reason that could justify the dramatic market falls. … Market sentiment has simply shifted. The scale has tipped and more investors are taking profits than new money coming into the market. When that happens, prices fall. And falling prices become a self-fulfilling prophecy, scaring off new investors and panicking investors with a short-term outlook. – The wisdom of Colin Twiggs

Slack Investor does not have a short term outlook. The share trading art is to stay invested in a stock when there is a relatively short-term correction – and to get out when there are more serious issues with the economy. Shane Oliver again

Corrections in the order of 5-15% are normal; in the absence of recession, a deep bear market is unlikely – From Shane Oliver AMP Capital