Some investors might think they have had a rough ride on the stock market over the past three or four months. But the recent share price gyrations pale into insignificance when compared with the biggest stock market falls of all time.
10) Wall Street 1901-03 -46% The market was spooked by the assassination of President McKinley in 1901, coupled with a severe drought later the same year.
9) Wall Street 1919-21 -46% There were fears that the new automobile sector was becoming overheated and that car ownership had reached saturation point.
8) Wall Street 1906-07 -48% Markets took fright after President Theodore Roosevelt had threatened to rein in the monopolies that flourished in various industrial sectors, notably railways.
7) Wall Street 1937-38 -49% This share price fall was triggerd by an economic recession and doubts about the effectiveness of Franklin D Roosevelt’s New Deal policy.
6) London 2000-2003 -52% The UK took sixth place in the table with a 52 per cent market fall between 2000 and 2003 as investors suffered the consequences of the collapse of the technology bubble
5) Hong Kong 1997-98 -64% The Hong Kong stock market’s heavy fall in 1997-1998 came as investors deserted emerging Asian shares, including a very overheated Hong Kong stock market
4) London 1973-74 -73% Next came the UK stock market’s 73 per cent drop in 1973 and 1974. set against the backdrop of a dramatic rise in oil prices, the miners’ strike and the downfall of the Heath government.
3) Japan 1990-2003 -79% In third place, with a 79 per cent decline, was the Japanese stock market, which suffered a protracted slide in price from 1990 to 2003 as a share and property price bubble burst and turned into a deflationary nightmare.
2) US Nasdaq 2000-2002 -82% The second biggest collapse came from the technology-rich US Nasdaq index, which fell by 82 per cent following the bursting of the dot.com bubble in 2000
1) Wall Street 1929-32 -89% The Wall Street Crash heads the list, with the US stock market falling by 89 per cent between 1929 and 1932. The bursting of the speculative bubble led to further selling as people who had borrowed money to buy shares had to cash them in in a hurry when their loans were called in.
David Shwartz, the stock market historian, says: “The very big stock market crashes are invariably triggered by a series of different events which unfold one after the other. For example the biggest UK stock market slump in 1973-74 was started by the fear of stagflation, but was then fuelled by the dramatic rise in oil prices of late 1973, followed by the Miners’ strike and the downfall of the Heath government.”One heavy blow is not enough to produce a market crash. It requires several different blows to bring a market to its knees.”
Source: www.investment-blogs.org
Wednesday, April 16, 2008
Signs of market overheating and impending stock market crash
When you hear the following signs in stock market, you know the market is overheating and the major correction or market crash is not far away.
2. Majority of investors even common folks are very optimistic about stock market.
3. Media covers with many positive news about stock market. Stock market becomes the headline news. You see most stock market news are interpreted as positive, even occasionally negative news do not seem to affect the stock prices at all because the market is really 'hot'.
4. A lot of people talk about making 'fast and hugh' profit within a few days or even a single day. They are generally very optimistic about stock market than anything else. Stock market seem to be their first priority now.
5. Almost all stocks are over-valued and set another new record high, majority of investors are very positive even for high P/E penny stocks and expect a further rise in the stock prices. They are afraid of missing the 'bull ride'.
6. Many companies went IPO, almost all newly-listed IPO over-subscribed unprecedented.
7. Almost all newly listed IPOs stock surge in first day of trading. Some IPOs stocks even surge more than 50% within a day. Unbelievable but true.
8. Extreme high volumes traded almost on all stocks, historical low-volume stocks also see significant rise in volume traded.
9. Even ordinary folks who have very little knowledge about stock market suddenly just queue and buy stocks. They just buy stocks blindly based on rumors. They 'tasted' quick gain and most of the times they just have strong hope their stocks are likely to hit another record high, they will usually hold it instead of taking profit because greed already set in.
10. Suddenly a lot of new accounts are open with stockbroking companies so as to trade in the stock market. You hear, read and watch news about family took their life savings and put almost all in stocks investment and suddenly they give 'advices' to ordinary folks about getting rich with their money.
11. Most market experts will think market crash will falls to others but not them. They will say the bull market now is different from last time. The markets never change but they do. Despite their knowledge, they are still 'blinded' by the fact of risk of investment.
12. Maniacs and excessive irrational in stock market. People spends more times talking about making quick money from stock market than making decent living from their jobs.
13. When a lot of stock investors suddenly become 'rich' overnight. Making money appears to be so easy in stock market.
14. ....
When the above warning signs exist, you know the end of a bull market is very near and the start of a bear market will begin soon. Hopefully by learning these common warning signs, you can liquidate your stocks investment fast and take your profits early before the market heading for major correction or crash. Although you may not get out the best/peak time but you will be rest assured the money already cashed out to your banks. You don't want to get caught of still holding the over-valued stocks. When market crash, blue-chips stocks are not spared either.
There are always some warning/tell-tale signs before bull stock market heading to major correction or crashes. If you are astute enough to recognize these signs, likely you are already cashed out your profits and out for good.
When dealing with human psychology, greed pushes up the stock prices but fears pushed it down. Be cautious with your hard-earned money or life saving. Bull markets are not long-lasting. The reverse is also true.All the best!
Attached video shows one of the investors invest all of her life saving in stock market. She voiced how she felt the pain of the markets recent tumble. Look like another painful lesson of not knowing the risks of investment when market is overheating. Unfortunately, this kind of thing happens every times when market is overly-optimistic. Someones will always get caught. Be cautious!
Thursday, April 10, 2008
Friday, April 4, 2008
SIP versus active investing
By Vinod K Sharma
| Systematic investment plan (SIP) is a popular investment strategy employed by a large mass of investors. Instead of making one lumpsum investment, investors put in a fixed sum of money each month, over a period of time. This system does away with the need to time the market. |
| Mutual fund managers find the strategy easy to sell because they harp on the age-old truth that nobody can time the market. Secondly, it addresses a large spectrum of clients ranging from anybody who can spare Rs 500 each month to the richest person in the world. |
| But there is a way of earning better returns than the SIP. We will come to that part later, but first, let’s understand the major features of the system. |
| SIP is only a methodology of investing. Investors must remember that merely investing through SIPs will not deliver the results. You need to choose the right scheme first. Money invested through a SIP will lose value if invested in the wrong scheme. So selection of the right scheme is the first job. |
| By opting to invest every month, you invest in a disciplined manner. This results in forced savings. As this is a monthly exercise, you tend to plan your expenditure and do not indulge in impulsive shopping. |
| Given an option, everyone would like to exit at the highest level and enter at the lowest. Unfortunately, no one has a crystal ball. So one can’t really time the market. But it is possible to give better returns than through SIP or investing in a lumpsum. Here’s how. |
| We turn the clock back and replay the current rally. It is May 1, 2003, the beginning of the rally. We give the SIP investor the benefit of hindsight and let him invest on May 1, 2003. Our SIP investor invests Rs 10,000 on the first of every month subsequently. |
| We save Rs 10,000 each month in our savings bank account. But we invest only 50 per cent of the amount saved if the Nifty falls 10 per cent from its high. If it falls another 10 per cent, we invest the rest. If, during the same month, the Nifty falls another 10 per cent, you have no money to invest and you have to let the opportunity pass as would happen to us in June 2006. You exit your positions only if you gain 50 per cent from the investment levels. |
| Here, our first opportunity to invest would have come only on January 22, 2004, when the Nifty finished 10 per cent lower from its January 9 high of 2,014. Bythen, we’d have accumulated Rs 90,000 in our savings bank account and invested 50 per cent of the money, that is, Rs 45,000 on January 23 in the Nifty. Though the low of Nifty on that day was 1,771, the actual closing was 1,847. And we have taken our investment at 1,847. |
| SIP V/S ACTIVE STRATEGY : How they compare | ||
| STRATEGY | Ann. Return over Period | |
| SIP | Nifty | |
| SIP since May ’03 | 28% | 39% |
| Invest at every 10% fall — from January 2004 | 33% | 24% |
| Invest at 10% falls and book profit on 50% rise — from January 2004 | 48% | 24% |
| Over all, during this period, we would have been rewarded with 12 such opportunities of investing and nine opportunities of disinvesting. |
| How do the returns compare? We find that the SIP has resulted in 28 per cent annualised return against 39 per cent of the Nifty. The annualised returns through an active investment plan were 48 per cent. You invested Rs 10,000 every month in an SIP, that is, Rs 5,10,000 and made a profit of Rs 4,16,000 as on Thursday, April 3, 2008. |
| In our theoretical active scheme, you had to invest only Rs 1,30,000 and would have still made Rs 3,88,000. Not a bad deal, I think. Source: business-standard.com |
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