From my limited experience on bear markets I try to give examples from the 2008 situation as it appears to me:
1) Sectors which move the fastest and the fiercest in the bull markets lose the most in the ensuing bear market.real estate, Infra, Power, financial services (brokerages, NBFCs), Reliance stocks.
2) Companies that are leaders in a bull market do not see their prices come for years in the ensuing bear market. For example ACC and Tata Steel in 1992 took a decade to see their old prices. Other 2nd line darlings like Lloyd Steel, Kakatiya cement, Swaraj Mazda etc are nowhere to be seen. Unitech and DLF could esist but I would like to see companies like Parsvanath, Purvankara etc many of whom will be wiped out. In 2000 we had DSQ, HFCL, Silverline, Pentamedia etc
3) People look at how far it has fallen from and start averaging. Instead of this they should look at the valuations.
4) All companies with questionable accounting practices wash their dirty linen as markets fall. So companies growing at 100% CAGR could suddenly start growiing at 40% in a few quarters and then finally show degrowth.
5) Point (4) happens because it becomes too costly for the management to keep cooking books when prices are not responding to supposedly good fundamentals in the short run.
6) But the market cap of such stocks will evaporate long before the companies start showing bad results. It happened with Infy in 2000 as the company grew more then 100% for 4 quarters and the stock price lost 80% in about 18 months!
7) Bear markets do not distinguish between blue chip and penny stocks. M&M fell 83% in 2001 from Rs 25+ to Rs 28; Infy Wipro,Satyam can be called as part of tech meltdown but Tata Motorts fell from Rs 300 in 1999 to Rs 70 in 2001!
8) It pays to stick with quality companies/sector leaders in non cyclical industries.
9) All new bull markets have new leaders because at every price you will have new sellers in the old favourites stocks which people think that they should sell just because they are breaking even.Cement, Steel in 92, EOUs in 94 and tech in 2000 never had it so good for them again.
10) I have seen two bear markets one in 1992 and another in 2000 and the portfolio destruction is maximum. People who make money are the ones who a) Cut losses b) Stop averaging c) DO not look at how high the stock has fallen from d) Patiently invest in companies whose EPS is bound to grow.
P.S: People who buy during the market are the ones who make a killing in the next bull market but what we buy is more iomportant then at what price we buy?
Edited by basant - 27/Jun/2008 at 11:38am
Active Topics
Memberlist
Calendar
Search
Help
Register
Login
IP Logged
