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A few of the investors here know what they are doing and that is cool but they have built this knowledge over time (and I am betting pain - hey we ahve all been there).
To any newbie investors there ...could I caution jumping in on spec shares.
A few of the investors here know what they are doing and that is cool but they have built this knowledge over time (and I am betting pain - hey we ahve all been there).
If you are buying do some research and grab something solid as your first step into the market would be my advice.
I am watching the likes of Wesfarmers, Woodside Petroleum and Woolworths (and no I don't stock watch by alphabet) ...Any of the Bank, Brambles (bloody going up)
more pain to come unfortunately my advice to newbies: stay away for a while
Many of the great stocks are dirt cheap at the moment, and it will be a buyer's paradise when the market starts to show signs of rising consistently.
In a falling market there are a number of stocks which will be oversold. If you can understand what is happening in the market then it goes a long way to helping you pick those that have been and may be worth picking up. A with all things there are no guarantees to Caveat Emptor!
1st - Why has it all suddenly gone **** up? - root cause is the sub-prime mortgages. What are these? Well theya re essentially laons to clients who would otherwise not get credit because of their poor credit rating/history. USA lenders have had some exposure to these borrowers and with recent rate rises they have been defaulting (no surprise there huh....u lend money to bad credit risks and they don't pay...mmm rocket science not).
2nd - Why then is it affecting the Australian (and every other share market)? - well part of the problem is that those lenders who lent the money in the first place weren't stupid enough to hold all of the risk themselves so they "on sold" the bad loans to other lenders....essentially hedging their risk. Other lenders have in course on sold their portion - hence who and where the end of the chain is is unknown since it could be any lender in the world who was willing to take on that risk - Immediately that would tell u that you probably shouldn't invest in company's that lend money - banks, building societies etc, because they potentially could be affected.
3rd - If its a lending issue why are stocks generally coming down? - well its got to do with money supply theory. If a large group of borrowes start defaulting, then money which the financail world thought it had suddenly doesn't exist....hence there is less money in the financial system. Hence there is now less money available for other company's/businesses/individuals to borrow, meaning that the cost of money will increase (ie interest rates) - hence you would also thus want to stay away from companies heavily reliant on debt (ie with high Debt to Equity Ratios), because they are going to have to pay more for their debt (unless locked in) or are going to sturggle to refinance debt as credit policies tighten (ie infrastructure companies)
4th - But surely that can't be all that is going on? - no, its further complicated by "hedge funds" and other "Fund managers" - investors in funds have a tendency to get jittery when they see an investment falling. As hedge funds tend to trade in derivatives, which amplify the risk and the rutrn, being poorly placed in a falling market can be a disaster! These funds are running out of funds and are seeking to liquidate their investments to pay investors seeking to redeem their investments - hence now you need to be careful of those companies who "invest" in other companies (ie Banks, insurance companies, pension companies, fund manages etc)
Care to name a few for us?
I'm no expert mate, but the banks, ASX, BNB are all cheap.
7 months down the track and time to revisit how these Nasdaq & S&P500 stocks are travelling:
MSTR (Microstrategy)
Started - $65 USD
Oct 06 - $119 USD
Now - $103 USD
BMC (BMC Software)
Started - $14 USD
Oct 06 - $30 USD
Now - $32.80 USD
CRM (Salesforce.com)
Started - $29 USD
Oct 06 - $41 USD
Now - $47.06 USD
Phew. Good news - still in front and 2 of 3 still climbing. MSTR has taken a bit of a hit - and hopefully it climbs back up above $120 again.