The bears seems to have come out in force. The more articles I read, the more times I see the word bear market and recession bandied about.
However, even if we are in a bear market it augers well for some bargains to be had. I read a recent article from Noel Whittaker, a well-known Australian author and investment adviser. He says:
However, as sure as night follows day, the market will recover – it is only a question of when.
Remember, too, that it is very rare for a correction to signal the start of a bear market. Looking over the last decade of market history, the market has nearly always reached a fresh all time high within three to five months of a pull back. Of the 10 market corrections we’ve seen since 1996, the market has traded to a fresh all time high nine times, and the high is often reached within just five months.
| Date | % Fall | New all time high within five months? |
| 1996 May | 10% | Yes |
| 1997 September | 20% | Yes |
| 1998 April | 17% | Yes |
| 1999 April | 10% | Yes |
| 2000 March | 12% | Yes |
| 2001 June | 17% | Yes |
| 2002 March | 22% | No |
| 2006 May | 12% | Yes |
| 2007 February | 7% | Yes |
The market has made a fresh all time high within just five
months in nine of the last 10 market corrections.
The main factor driving the market downward is uncertainty. The current crash was triggered by the American sub prime crisis and buyers are going to wait on the sidelines until they believe that all the bad news is over. Unfortunately right now it just keeps coming.
According to fund managers I have spoken to, the major difference in this correction is the increased activity of hedge fund managers, who will not hesitate to short a stock or a segment and have been know to spread rumours through places like internet chat rooms. This will not affect the long term outlook for shares, but it will mean the markets will be more volatile as the hedge funds trade aggressively.
It’s also important to remember that, even though our blue chip companies have seen their prices fall, they are still operating top businesses and paying good dividends. Once the present bloodbath stops you can expect prices to rebound quickly.
The scarey thing here is Noel’s comment about hedge fund managers. Be wary of any hyping you hear on forums and in chat rooms, as the instigator may have ulterior motives.
New Zealand is about to introduce a new securities law that will stop the so called ’ramping’ of shares – and there is a hefty fine associated with it should anyone be caught out.
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