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What To Do When The Stock Market Crashes

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It has been one hell of a roller-coaster ride for investors over the past week or so. You may think the odds are stacked against you. We don't…

Dear Fellow Stock Market Investor,

A week in the stock market can be a long time.

Rewind to a couple of weeks ago…

China was growing at an annualised rate of 12%, its fastest rate in 12 years, and placing it on-track to surpass Germany as the world's third-largest economy.

Fat Prophets was predicting the commodity boom to last for decades.

World stock markets were regularly hitting new highs.

Fast forward to now…

China is still growing.

Fat Prophets is still predicting the commodity boom to last for decades.

World stock markets have wobbled.

You might be thinking…

How dare this darling stock market of ours wobble?

How dare it cause our investments to fall?

How dare it give us sleepless nights, as we lie awake wondering just how far Wall Street will tumble?

How dare it ruin our weekend as we fret about how much it will fall on Monday morning following Wall Street's chaotic Friday?

HOW BLOODY DARE IT

A Forgotten Four Letter Word

There is only one word to describe this despicable state of affairs. It's a four-letter word, so for those of you who don't like swearing, look away now.

Until last week, many people hadn't used this word since 2003. It had simply disappeared from their vocabulary.

Forgotten.

Ignored.

Gone.

But now it's back...

RISK

Believe It Or Not…

Believe it or not, when you invest in the stock market, you immediately take on a level of risk.

Believe it or not, stocks can go down as well as up.

Believe it or not, private equity is not a license to print money.

Believe it or not, the housing market can go down as well as up.

But here at Fat Prophets, RISK is a word we are very familiar with. In fact, we are so familiar with it that we often think perhaps we are being over-cautious with the stocks we recommend to our Fat Prophets Members.

When we see the latest mining-related Initial Public Offering (IPO) shoot up 30%, 40%, 50% or even 100%, we sometimes think our over-cautiousness is costing them money. After all, wealth creation is our mission.

But we only think like that for about a nanosecond. For those unfamiliar with a nanosecond, it's a billionth of a second.

It's no secret that we are fans of the world's greatest stock market investor, Warren Buffett. When it comes to RISK, he is quoted as saying …

"Risk comes from not knowing what you're doing."

We couldn't agree more. As you'll see a little further down, we think we know what we're doing, and more to the point, continue to find a good supply of stocks to recommend to our members.

In fact, as we said in an email to our Fat Prophets Australasian Report members just a few days ago, "we have a number of new stocks that we have been monitoring with a view to including in the portfolio in coming weeks."

The US Sub-Prime Mess

"We are experiencing home depreciation almost like never before, with the exception of the Great Depression. This is a huge battleship, and we're headed in the wrong direction."

The quote comes from the CEO of Countrywide Financial, the USA's largest mortgage lender.

Why does the US housing market matter to us here in Australia?

It's a good question. Here are some possible answers.

  1. It doesn't matter to us.
  2. It has some relevance to us.
  3. It matters a lot to us.
Certainly in the short-term, it does matter to us, because the US sub-prime crisis caused the Australian stock market to fall around 5% last week. Here's why…

  • Fear has spread into corporate debt market, which has lifted the cost of debt across the board and has had an impact on the buying potential of private equity firms.
  • It appears that investors are taking profits on recent winners, and that in turn causes stocks to fall. The simple laws of supply and demand dictate that the more selling there is, the more prices will fall.
  • We've experienced a massive and growing credit bubble in the last few years and the very threat of that unwinding has a big impact on the stock market.

But What Does It All Mean To Me?

It would be easy for us to sit here and say that over the long-term, this downturn will be totally insignificant. But that comment might be viewed as a bit flippant, given that some people may have lost money in last week's market wobble. No-one likes to lose money, and we don't like it when people lose money.

So instead, we'll refer to another Warren Buffett quote and let you make up your mind about what we think of the events of last week…

"A market downturn doesn't bother us. For us and our long term investors, it is an opportunity to increase our ownership of great companies with great management at good prices. Only for short-term investors and market timers is a correction not an opportunity."

Stock market wobbles happen fairly regularly. In case you'd forgotten, we had one in February this year. We had another one mid-way through 2006. There was another one in October 2005. And there was another one in March 2003.

But if you look at the bigger picture, things might seem a little different…

Can you see the wobbles now? They are there, but just a little harder to see. That's because your eye is focusing on the long-term direction of the chart.

Stock Market Wobbles & Crashes

Stock market wobbles happen regularly.

Stock market crashes happen rarely.

Over the long-term, history has consistently seen rising stock markets.

The most infamous stock market crash in recent memory happened in October 1987. On one black day, the US stock market as measured by the Dow Jones Industrial Average, fell 23%. The Australian stock market was not spared - for the month of October 1987 it fell 42%.

The year is now 2007. Almost 20 years have passed since the great crash of 1987. And yet people still fear a crash. People who were still in nappies in 1987 fear a crash. Bizarrely, even people who have never invested in the stock market think the next great crash is just around the corner. They've been thinking like that since 1987.

If you are sitting on the stock market sidelines waiting for the next crash before finally taking the plunge, you may be waiting a long time. We just hope you don't grow too old in the interim!

BHP Billiton Is Still A Great Stock

We hope you can see where we are coming from with all these charts and boring statistics.

From a big picture perspective, not a lot has changed between last week and this week.

If you believe the resources boom will run for decades, as we do here at Fat Prophets, then you'd still be sticking with BHP Billiton.

If you believe that uranium will account for a much greater share of world energy production over the ensuing decades, as we do here at Fat Prophets, then you'd still be sticking with Paladin Resources.

If you think like Warren Buffett, as we do here at Fat Prophets, you'd be thinking less about the short-term share price pain and much more about the long-term opportunities.

On the other hand, if you'd been buying shares in BHP or Paladin because you'd read in the papers that a private equity company was rumoured to be preparing multi-billion dollar bids for them, you'd be disappointed.

Panic Not

While we don't think there is reason to panic over the last week's stock market wobble, we do have concerns about the housing market in the US. Many loans are due to re-set at higher interest rates throughout the remainder of the year and into next year, putting upward pressure on default rates. This is likely to keep the supply of housing historically high and put downward pressure on home prices.

If this happens, we think the US Federal Reserve will step in later in the year and lower interest rates, providing a fresh injection of liquidity into the markets in an attempt to keep the housing market propped up.

With this in mind, we continue to favour gold and oil companies in particular. In fact, amidst the stock market mayhem of last week, the oil price rather quietly edged closer to its August 2006 all-time high of $78.65.

We continue to like the strategic importance of oil. The current oil price is around the $78 mark, remarkably close to both its all time high and to our target of $80.

One Of Our Favourite Gold Stocks

Wealth creation is the Fat Prophets mission. We achieve this goal by recommending stocks to our Members. A little further on, we'll give you details on how you too can join the thousands of satisfied Fat Prophets Members. But first we want to give you a flavour of a couple of our most recent stock recommendations.

As we said earlier, we continue to like gold and oil companies. In our last Fat Prophets Australasian Report, emailed to Members just this week, we reiterated our buy recommendation on one of our favourite gold stocks.

Here are some of the things we like about this gold company…

  • A recently completed billion dollar-plus capital raising leaves the company as an unhedged gold producer with no debt.
  • They are well on their way to producing 1.25 million ounces of gold by 2010.
  • We believe the gold price will be significantly higher over the next few years, which should further strengthen the company's cash generation profile.
  • From a charting perspective, we believe a major move in the share price is not far away.

And this is not the only gold company we like. In fact, of the eight current buy recommendations in our Fat Prophets Australasian Report, four are gold stocks. If it's gold you're after, it's gold we've got.

As a reminder, the current gold price is around US$665 per ounce and our longer-term target is US$1000. If the gold price gets anywhere near that level, those four golden stocks should all benefit.

One Of Our Favourite Oil Stocks

And now to oil…

In our most recent Fat Prophets Mining & Resources Report, we reiterated our buy recommendation on one of our favourite oil stocks.

Here are some of the things we like about this oil company…

  • Their strategy - enhancing production from aging oilfields - lowers the risk profile of the company.
  • Despite the lower-risk profile, the company is growing rapidly, as evidenced by the 31% jump in revenues in their most recent quarter.
  • In our last report to Fat Prophets Mining & Resources Members, we labelled this company as "one of our oil sector favourites".
  • They have 100% ownership of the second-largest oilfield in Turkey in historical production terms. If they can increase the recovery rate so it is closer to typical averages, they would have potential access to an additional 45 million barrels of recoverable oil. For a company worth a total of around $100 million, that's a lot of upside potential!
  • Unusually for a junior oil company, the shares effectively trade on a de facto dividend yield of 5%.
  • Finally, they remain entirely debt-free, leading us to tell Members that the company "represents a cheap producing oil exposure for those investors with an appetite for risk".

This company is just one of eleven current buy recommendations in our Fat Prophets Mining & Resources Report. Amongst the eleven, there are medium-sized companies like this one, large companies like BHP Billiton, and absolute tiddlers, like the oil company with a share price of just 9 cents and about which we recently said: "we believe that exciting times lie ahead."

A little further down we'll give you instructions on how you can instantly access the names of all these companies, plus details of a very special offer, exclusive to readers of this email.

Could You Make $1 Million* In Just 15 Years?

At Fat Prophets…

We always sleep well at nights.

We always focus on value stocks

We never forget risk.

What we can't do is stop the good stocks getting sold with the bad in times of a widespread market wobble.

However we're confident that over the long term, our value plays should put the investor in good stead.

How good? Although past performance is not a reliable guide to future performance, we think our long-term track record speaks for itself.

Here are the returns of our flagship Fat Prophets Australasian Report over the past 6 years.

2006 +25.2%*
2005 +23.4%*
2004 +27.5%*
2003 +43.7%*
2002 +26.8%*
2001 +18.0%*

(Performance correct to 30th June 2007*)

Our annualised return since inception in October 2000 to the end of June 2007 is 31.2%*.

To put that into perspective, $20,000 growing at 30%* per annum would be worth close to $75,000* in 5 years, over $300,000* in year 11, and hit the $1 million* mark after 15 years.

Fat Prophets Mining & Resources Stocks Are On Fire

The past returns for our Fat Prophets Australasian Report have been excellent, far outstripping the returns of the market over the same period*.

But the returns from our Fat Prophets Mining & Resources Report are even better*.

For the 12-month period from 1st July 2006 to 30th June 2007, the Fat Prophets Mining & Resources hypothetical portfolio gained a stunning 58.3%!*

58.3% in just 12 months!

In case you are thinking that return is some sort of fluke, here's how the same portfolio has done over the past 6 years…

2006 +45.7%*
2005 +34.6%*
2004 +12.1%*
2003 +50.6%*
2002 +30.9%*
2001 +27.8%*

(Performance correct to 30th June 2007*)

So, if you'd invested $100,000* on January 1st 2001 and followed all our recommendations from then until the end of 2006, your $100,000* would now have turned into about $553,867*.

As you would imagine from looking at our track record, the Fat Prophets analysts are highly skilled and experienced. They are often seen on Bloomberg, CNBC, Sky News and ABC television giving expert advice on the stock market. We are regularly quoted in the Australian Financial Review and other national newspapers.

We don't listen to the latest rumours, or chase the latest fad. We spend our time researching hundreds of companies with the sole purpose of recommending the very best of the bunch to our esteemed Members.

What Other Stock Market Investors Are Saying About Fat Prophets…

But don't just take our word for it. Here's just a small selection of what our subscribers have to say about the Fat Prophets Reports…

"Most superior I have seen…"
I congratulate you on your service. I have been in the investment business for 20 years and your service is the most superior I have seen and used. Not only for the content and service but the way the information is presented. Thank you.
-- B Street

"Your advice is so much better…"
I used to subscribe to another report and have now switched to Fat Prophets. Wow your advice is so much better in every aspect. Keep up the good work. You guys must have one hell of a fat brain!
-- B Winter, subscriber since issue 7

Over $120,000 in profits
Thank you for your great service. Since becoming a member, I have chalked up in excess of $120,000 in profits…Keep those reports coming!!
-- C Simpson

How To Become An Exclusive Fat Prophets Member

By now you're probably curious as to how much it would cost to become a Fat Prophets Member.

But first, let's quickly summarise what you get as one of our valued Members…

  • As a Member, you'll automatically receive our weekly email alerts. Every week, after the markets close, we rush to you our latest share recommendations. This way, when the market opens the next morning, all members are able to buy the shares at a similar great price.
  • Each weekly alert usually contains between 2 and 4 buy recommendations. They are also packed with our very latest views on themes like the state of the markets, commodity prices, or the economy in general.
  • Members also get instant access to all of our archived recommendations, including the names of our favourite gold and oil stocks mentioned above.
  • Instant access to the names of ALL 19 current Fat Prophet Report buy recommendations.
  • Every so often we come across a buy recommendation so exciting and so compelling that we just can't wait until the regular email update to tell you. So to enable you to buy at the lowest possible price and before these companies are discovered by the stock market community at large, we rush a special buy alert email directly to your inbox.
  • We're so confident you'll like and profit from our service that if for any reason you'd like to cancel your subscription in the first 30 days, we'll refund your payment in full with no questions asked.

How To Get Started Straight Away

Normally, an annual subscription to the Fat Prophets Australasian Report costs $695.

Normally, an annual subscription to the Fat Prophets Mining & Resources Report also costs $695.

Combined, the cost of those 2 reports is $1390.

For a strictly limited amount of time, we are offering brand-new Fat Prophets Members a very special deal.

Instantly Save $200 AND Get 6 Months Extra, Absolutely Free

For a very limited period of time, if you sign up to receive BOTH the Fat Prophets Australasian and the Fat Prophets Mining & Resources Report, usually costing $1390, we are offering a $200 discount AND three months free on BOTH reports.

In total, pay just $1190 and get 15 months for the price of 12 on BOTH reports, a total of 6 months extra, absolutely free.

Let's spell that out again…

Fat Prophets Australasian Report - Usually $695 per annum
Fat Prophets Mining & Resources Report - Usually $695 per annum

Subscribe to both market-beating reports for a year at just $1190, instantly save $200, AND get a total of 6 months extra absolutely FREE.

Rest assured, this offer also comes with our money-back guarantee, as you would only expect from Fat Prophets.

These offers are exclusive to readers of this email, and can't last forever. You must click on the link in this email to be taken to our special offer subscription page.

We urge you to act now in order to access our current recommended stocks and our very special subscription offers.

We wish you happy and profitable investing.

Fat Prophets…where wealth creation is our mission.

Yours sincerely,

Fat Prophets
Investment Heavyweights

P.S. Don't forget about our SAVE $200 and 3 MONTHS EXTRA FREE SUBSCRIPTION ON BOTH REPORTS very special offer. As you would expect from Fat Prophets, the company The Australian Financial Review called "…among the liveliest and most contrarian of market commentators", it comes with our watertight 30-day money-back guarantee. And if for any reason at all you don't like our service, we'll happily refund your money in full.

 

 

 

 




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