Rus Articles Journal

How to invest in the falling market? Part 1

Today we state the continuing decrease of stock market - both Russian, and foreign. Experts see the main reason of it in not ended world economic crisis.

That is, despite all admonitions of the governments, a number of economists has a steady opinion that the anti-recessionary policy did not yield any serious results, and provided only a temporary respite on which termination we are waited by the second wave of crisis and, respectively, further decrease of stock market.

Such succession of events - a question on which it is possible to argue long is how real. But we as to investors need to know how to work if forecasts about falling of stock market and its further sluggish existence nevertheless come true.

by What is so attractive the falling stock market to the investor

to answer this question, it is necessary to understand that originally large profits in investment come from a continence of actions which there is a lot of - many times rose over the price which is originally paid for them.

Respectively profitability of the investor will be that more, than cheaper he took shares and than more in the subsequent they will grow in the price. Falling of stock market also creates conditions of reduction in cost of actions and their acquisition at minimum possible price.

And the price falls as owing to objective problems in world economy, and under the influence of pessimism of participants of stock market which exhausts stock prices even below. That is, besides the objective reasons, such irrational components as mood, rumors, expectations, fears and other come into effect.

Thus for the patient long-term investor there come the most favorable times for acquisition of qualitative, but cheap securities.

the Possible depth of falling of stock market

If to remember the first wave of crisis then many actions dropped by 70-90%:

- the index of MICEX in May, 2008 reached the at most in 1966-1970 points from where about 513 points as of the end of October of the same year fell, that is losses made 74%;

- the RTS Index fell down from maxima in 2487,92 points to a minimum in 549,43 points, that is losses made about 78%;

- some actions of the second echelon fell even more - losses in the price made up to 90%.

Similar consequences can be expected also from the second wave, that is actions can fall from the maxima on average of percent on 80.

Thus if you want to learn future cost of the securities which are available for you on condition of the most awful succession of events, then look what post-crisis maximum was already shown by your actions, and take away from this price of 80%. For example, if the highest course made 100 rubles, then after passing of the second wave of an economic tsunami the course will be equal to 20 rubles.

However as the stock market already passed the post-crisis maximum, that is already began falling, and falling gradual, it will not be for shares holders such sharp any more and shock as 2008. Respectively absence of similar panic moods, that is desires to sell by all means and at any price as at a collapse of 2008, everything gives us chance - not to reach in the falling to 80%. whether

Should selling or continuing to hold

These 20 rubles, or the maximum post-crisis price of an action minus 80%, and have to be that reference point, looking at which you will make the decision, whether you should sell paper or to continue to hold it.

If you the long-term investor, took the share of these 20 rubles, for example long ago and much cheaper - for 1 ruble, then a gain of the price for 19 rubles, or for 2000%, is very acceptable profitability in 10-15 years because the difficult average annual percent turns out 22-35%.

If you managed to take shares practically at the peak, for example on 90 rubles, then your losses will make 70 rubles (90-20), that is you are recommended to sell shares. whether

the market after falling Will be restored with the same speed as after crisis of 2008

the stock market was restored by

After falling of 2008 rather quickly - in two years (and for some papers - in a year) the current stock prices reached pre-crisis tops. Indexes - MICEX and RTS slowly approach the pre-crisis maxima also.

Whether events will develop according to the same scenario after the second wave of crisis - a big question.

The matter is that so rapid growth of share prices in 2009-2010 was connected with inflow of the speculative capital which is obliged by the emergence to neoliberal approaches to resolution of crisis - printed the governments of the developed countries and distributed to financial institutions a large number of poor bank notes.

All this money supply had to become a vivifying credit rain for the withering business. However nothing from this left because in the absence of a growing demand it does not make to give money to production of big sense - to start up them on speculation far more favourably. The increase in prices not only actions, but also on, for example, food is also explained by inflow of this speculative capital.

It is unlikely consequences of the second wave of crisis will be liquidated already used, but by an ineffectual method - by enormous issue of dollar. Limits of an impetuous rating of banks were already now designated by the state subsidies. It means that speculation was included into a phase of the compelled state support reduction. Therefore to expect the prompt growth of the market after the second wave of a destructive economic tsunami - it am hardly necessary.

Be continued.