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Market Turmoil

Unfortunately, anyone who owns equities right now is affected by the current market turmoil.  I am no exception and I expect that my net worth statement this month will take a big hit. 

Why is the market tanking?

To put it simply, it's because of uncertainty.  With sub prime mortgage defaults on the rise, those financial institutions exposed to that particular lender market will take a big financial hit.  People are uncertain how far into the economy this will reach.  Uncertainty = panic selling.  For a more detailed explanation, Globe Investor has a great primer on the credit crunch

So what do you do in times like this?

Long term investors should expect volatility like this in the market from time to time.  Actually, long term investors should get excited when markets dip because of the potential buying opportunities.  Good companies are currently being sold off due to panic selling.  Financial stocks are getting pummeled because of sub prime exposure.  But if you're looking 10 to 20 years down the road, this whole sell off will be a little blip on the map.  Stay the course.

Although I am invested deeply into the market, I do have a bit of cash on the sidelines waiting to be deployed.  I'm not the type to try to pick the bottom, but I aim to buy when the market starts to turn around.

Which stocks are attractive?

Personally, I think that the Canadian big 5 banks are over sold.  Yes, they may go down further because of their sub prime exposure, but in my opinion, I expect that they will bounce back to form in no time.  Banks that I'm watching, RY-t, BNS-t, TD-t, CM-t, BMO-t, NA-t along with MFC-t (insurance).

Below is a 2 year chart of the Canadian financials ETF: XFN-t – just another dip?

 What are your thoughts on the market correction?

Disclosure:  I own some of the stocks mentioned in this post. 

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 16 comments… add one }
  • Gates VP August 16, 2007, 6:22 am

    Nah, it’s a big slide, I called it two months ago elsewhere, but I failed to called my broker. They’re not doing a great job to start with, but I really don’t have much invested so they’ve pretty much failed the three-year test (underperformed in an upward market, lost big in a downward market, I could’ve done that myself).

    I noticed the chart, but I wanted to provide a morsel of “technical analysis” that I picked up, but that Google does not offer (try BigCharts.ca). When charting, use the “semi-log” scale. Right now, the difference between 55 and 50 is the same as 30 and 25 (you’re an engineer, I know that you know what I’m talking about :). Semi-log at least let’s you see movement in relative percentages which is really what we care about. That drop looks much smaller in semi-log (and it is smaller percentage-wise).

    Aside from my TA advice (son of an analyst), I’m behind you on the bank idea, they’ve just jacked up their rates, they print their own money, they were already on the comeback yesterday. Of course, the CAD took a hit, which is likely very temporary. Personally, for the next few years, I’m sideways on Canada and bearish on the States.

    There may be money to be had in the States, but I’d much rather invest elsewhere where new wealth is being created in large sums. Of course, once I dump my broker, I’ll have to research some more details :)

  • The Financial Blogger August 16, 2007, 8:52 am

    FT,
    My only regret is that I do not have much money to invest right now. This is definitely a good timing to average down your price on many stocks. This is one of the advantage of the Smith Manoeuvre or other periodic investment methods, you never buy too much at a high price and you average down when market is falling.

    It is funny that you pointed that banks would be good stocks to buy as I am preparing a post for tomorrow on banks stocks ;-)

  • Qubikal August 16, 2007, 1:31 pm

    i’m getting ready to jump out of my office window. (j/k). Unfortunately, i’m only working on the first floor of the building.

    Working on the smith maneuover, so hopefully the averaging down will help the gains in the future.

    It’s a rough ride, just stick with it…

  • Average Joe August 16, 2007, 1:40 pm

    In recent weeks, I have been concentrating my analysis on financials (both Canada, the US and internationally). I agree that there are some good opportunities available.

    I have just recently finished analyzing TD and RY. But I have done BNS, BMO and NA a few weeks earlier.

    My analysis shows that some of these stocks are still overpriced even with this correction. But others seem to be selling at a discount.

  • FrugalTrader August 16, 2007, 1:42 pm

    From you analysis, which ones would you consider a discount? What criteria do you use to determine if a stock is selling at a discount?

  • The Financial Blogger August 16, 2007, 2:15 pm

    Average Joe, would you mind sharing your analysis? I am sure that there is a lot of people that might be interested in these.

    thx!
    FB.

  • Average Joe August 16, 2007, 2:28 pm

    I basically use 3 methods to determine a model price: average high dividend yield, Graham number, and a discounted present value calculation.

    I had BMO, RY and NA selling at a discount. I had BNS and TD still too expensive. However, with today’s current drop, BNS is just now coming into buy range as well.

    Feel free to drop by http://www.dividendsmatter.com to see my methodology and my model prices. (Sorry for the plug)

  • Q Cash August 16, 2007, 3:06 pm

    Time to buy.

    I have been sitting on a little cash that I wanted to purchase some more dividend producing and income generating stocks and funds.

    Today is the day. My intention is to spread it around the banks and a few income trusts.

    We will see how it pans out.

    Q

  • nobleea August 16, 2007, 3:33 pm

    Certainly capitulation today. This is when you buy. I sold some stocks that were only down a bit to put the money in stocks that were down a lot (for no reason). I invest primarily in the precious metals stocks, so amplify the general market volatility by a factor of 2 at least.
    I’m not really concerned though.

  • WhereDoesAllMyMoneyGo.com August 16, 2007, 8:24 pm

    I think trying to time the exact bottom is a nerve-racking experience. I heard a lot of “don’t try to catch a falling knife” comments from other brokers in my office. It was something else today, as the TSX was off almost 600 points by lunchtime but clawed back 410 of those point over the afternoon. So if it’s all uphill from here (who knows) then the exact bottom was right when I was ordering lunch today… :)

    I can tell you the analyst calls from the streets and overseas are predicting more fear based selling, coupled with programmed-trading triggers – although fundamentals are still firm. Personally, I’m waiting until we lose the volatility before buying – I don’t mind missing 2% to 3% of the first part of the next uptrend – long run it doesn’t make much difference. I think it is quite possible for more losses next week – so, to re-iterate, I’m having all my clients hold off until we have some stability and a clear signal we are through the madness.

    I would point out that the yield on Yellow Pages is over 8.5%… do your own due diligence however. But personally, that’s tops on my list.

  • moneygardener August 16, 2007, 11:48 pm

    In my value analysis of the banks I follow BNS is the cheapest by far. My order goes BNS, RY, BMO, then TD.

    So far during this downturn I have initiated a position in BNS, and today I doubled my stake in Yellow Pages.

  • FrugalTrader August 17, 2007, 8:43 am

    moneygardner, would you mind telling us a little more about your analysis?

  • Wiigal August 17, 2007, 8:46 pm

    moneygardner, what price do you think is good buy price for RY?

  • moneygardener August 18, 2007, 4:04 pm

    I describe the process that I use to value stocks in a couple posts on my blog (sorry for the plug)

    RY looks like good value below $52.

  • stock investing blogger September 2, 2007, 5:51 am

    As per me, the market turmoil is here to stay for some more days. At such situation from stock investing point of view it is really a great buy opportunity looking from at least 4 to 5 years perceptive, but from stock trading point of view, i will use every rise in my selected stock pick to sell.

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