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SHARE MARKET FALLS

INTRODUCTION

The sharemarket has enjoyed a great run since the Global Financial Crisis. Will it continue or will a major fall in the markets put an end to it all? No one knows therefore, it is important to set proper financial goals and use strategies to factor in scenarios which may or may not occur.

What to do if the sharemarket crashes

The 1987 sharemarket crash known as “Black Monday” wiped out fortunes as many investors lost their life savings. Those of a generation who were around back then will be well aware of what can happen when you place all your eggs in one basket as many investors did. I mean there were stories of investors borrowing money to purchase shares using the value of their shares as collateral. When the markets went down, the value of their shares were a fraction of the money owed on the borrowed money.

The 1987 crash was the worst crash since the 1929 Wall Street crash. There were almost 60 years between 1929 and 1987 so investors need to reassure themselves that another crash may not fall within their lifetime.

So what should investors do when the markets are falling?

Here are my 5 tips:

1 KEEP CALM

Do not fret, markets go up and down like a rollercoaster. Treat the markets as a long term investment. If you are young then you have time on your side. There is time for you to recover from financial setbacks. Even if you are say 50 you still have another 15 or so years before you reach the age of retirement so you do not really need to be too conservative, however, someone who cannot stomach the thought of rapidly falling markets would disagree. It all depends on your temperament. 

A financial advisor is likely to steer you to more conservative investments if you are approaching what is termed “The retirement age.” 

2 STICK TO YOUR FINANCIAL PLAN

It is important to stick with your original plan despite all if the negativity in the newspapers which will no doubt arise after a crash. When planning your financial strategy your plan needs to factor in the possibility of a sharemarket tumble. Shares can take investors on a rollercoaster ride which rewards persistence.

3 DON’T TRY TO TIME THE MARKET

It is time not timing which rewards sharemarket investors. Few investors have the knowledge to predict the movement of a share price and those who do and take advantage of it are breaking the law because it is known as insider trading. Investors should do their homework first and trust their own judgement when deciding on which shares to buy. 

4 KEEP SAVING AND INVESTING

The market rewards consistency. Investing into the markets when there is so much negativity which will follow a crash will pay off. As they say “Fortune favours the brave.” The advantage of investing when there is not much negativity and uncertainty in the markets is that you will be able to snap shares up at bargain prices and as the market recovers, investors will gradually jump on the bandwagon and in doing so will give it a shot in the arm.

5 LISTEN TO THE RIGHT PEOPLE

A sharemarket crash will dominate the news for weeks and all of a sudden there will be financial experts coming out of the woodwork with advice on what you should do with your money. A smart investor will be able to discern between good, bad, or downright stupid advice.

www.robertastewart.com

ABOUT THIS ARTICLE

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THE ART OF AVERAGING

INTRODUCTION

Investors must realise that investing in the markets has its ups and downs (literally) that it is important to keep it all into the right perspective if investments do not go your way. There is a method of playing the markets in a way that you can take advantage of the market drops. 

The Art of Averaging 

Averaging is a term one may come across in the markets now and and again; what this refers to is the average price paid for a particular share if you had bought shares in that particular company.

To calculate the average price paid for a particular share you add up the total amount you have paid for the shares and divide that by the number of shares you have bought in that company. 

The answer is the average amount that you have paid per share.

Try this mathematical question:

There are five numbers 10, 20, 30, 40, 50

What is the average number?

The calculation: 

Add up the five numbers:  10 + 20 + 30 + 40 + 50 = 150

Divide the total of the five numbers (150) by 5

150 divided by 5 = 30 (answer)

You can do this easily with a calculator.

There are so many share trading platforms available these days that investing directly into the sharemarket has never been easier for the ordinary man and women.

So how does averaging work?

If you purchase stock at regular intervals you will pay different prices for each stock because share prices go up and down. Imagine if you bought something at the supermarket last week at the full price then bought the same item this week on special. The average price you paid for the item will be somewhere between the higher price and the lower price.

The sharemarket works like that. By purchasing a particular stock at regular intervals you will manage to pick up some shares in it when the price is lower. This is the advantage of saving regularly. 

In fact I think there is a case for purchasing more shares when the price is low. The average price paid per share is determined by calculations as explained earlier. 

The averaging strategy can also be used in cryptocurrency investing. 

Bitcoin is more volatile than the sharemarket so an astute investor who has an eye for a bargain can invest when the price has dropped.

There are so many share trading platforms available that playing the markets are accessible to everyone. I have joined two of them in New Zealand. Most countries have share trading platforms available. Signing up for them is easy; you require some form of identification. Just follow the directions and you are all set up.

TO SUMMARISE

Playing the markets requires a positive mindset and a cool head. If you have these you can profit from falling markets. Averaging is a method that takes advantage of falling markets.

www.robertastewart.com

 

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LESSON FOR SHAREMARKET INVESTORS

The article below is of the opinion of the writer, if you require advice from a qualified professional then see your financial advisor, bank manager, or budget advisor

Do your homework lesson for do-it-yourself investors

Written by R. A. Stewart

On the news recently was an article about sharemarket investors in New Zealand who got their fingers burned by investing in a company whose price dropped dramatically after the company was revalued. The previous valuation was an error and a lot more than its real worth. Its share price tumbled quite dramatically.

Some young investors who used the share trading platform Sharesies got their fingers burned with one losing $10,000 as the reporter stated.

The share price increased by 1000% in a short time so looking at the maths of all of this, for a share price to increase by 1000%, it would have to be worth ten times its listing value so if the investors who was said to have lost $10,000 would have invested $1,000 to begin with.

So that would have been his actual loss.

The company was one I had never even heard of and the lesson here is to do your homework first. Don’t invest in anything unless you know something about it.

A presenter said, “Shouldn’t Shareies have done more to warn investors?”

My view is this; Sharesies are not there to spoon feed their investors, it is up to everyone to do their due diligence. With Sharesies, investors have the choice between investing in individual companies or managed funds. 

With managed funds, your investments are chosen by the fund manager. They are experts in their field and know what they are doing.

Investing in individual companies requires investors to use their own judgement but is a great way to learn about the markets and those who lose money in this way should learn the lesson and grin and bear it. 

If you are from New Zealand and would like to have a go at online investing then I recommend Sharesies, I am with them myself, you can join here:

https://sharesies.nz/r/377DFM

www.robertastewart.com

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LEARNING FROM PAST FINANCIAL MISTAKES

This article is of the writer’s experience and opinion. If you require financial advice then see your bank manager or financial advisor.

Learning from past investing mistakes

By Robert A. Stewart

“He who never made a mistake never made anything,” but there is no need to make a mistake if you can help it. How? By learning from other people’s mistakes.

The most tragic thing of all is to not learn from your own mistakes; here are some tragic examples which have left people with badly burned fingers.

In October 1987 the sharemarket crashed bigtime; there were horrific stories of mum and dad investors losing fortunes. Leading up to the crash investors would borrow money to purchase shares by using the value of their shares as collateral. As the share values increased, they were able to borrow more and more money. One story I was told was of a man who borrowed money using the value of his home as collateral. 

Many companies were basically called paper shufflers; in order words they were not producing anything tangible but trading in shares.

It took several years before the market recovered.

One should never borrow money to purchase shares which is the first basic lesson of investing.

During the Global Financial Crisis several finance companies went belly up in NZ; these included Provincial Finance, Hanover Finance, Dominion Finance, Lombard Finance, and South Canterbury Finance. There were sad stories with one common one being of investors who had their whole life savings invested in the company. The media’s spin on this is to tell the viewer about the investors who lost everything they invested but that is not the case. The truth is investors were drip-fed money from what the receiver’s could recover.

The investors concerned had a lot to say about all of this but one thing was never mentioned was the fact that they placed all of their financial eggs in one basket. This is a fundamental mistake. In one case, an investor had NZ$400,000 invested in Hanover Finance. One would have thought an investor with commonsense would have spread their money around. 

It does make one wonder whether someone provided this investor with misleading advice. 

The second basic lesson is to not place all of your financial eggs in the one basket.

Crypto currency such as Bitcoin and the like have been very popular during the last ten years. Stories of great wealth have been floating around from time to time of investors who have invested x number of $ and turned it into a fortune worth x. My view of Crypto Currency is that it should be treated as a bit of a gamble where you only invest discretionary income in. Only money you can afford to lose should be invested in crypto currency.

A company called “Cryptopia” which was basically a blockchain which held funds invested in Bitcoin was hacked into and all those with bitcoin invested with cryptopia lost their money. There were some sad stories of an x amount of $ lost.

The third lesson here is to NEVER invest money in cryptocurrency which you can not afford to lose. In other words only use your discretionary money for Bitcoin.

It is certainly well worth remembering that if there is a chance of capital gain then there is also a chance of capital loss. That is the nature of investing.

The bottom line is this; “It is up to YOU, the investor to take responsibility for your mistakes.

www.robertastewart.com

Investing in Gold is worth looking at but like other investments an investor needs to do their research, check out the following;

https://affiliates.goldco.com/l/1VRW1MU2Q/

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