It is always important for investors to understand how much the Moscow Exchange index can fall, what falls have been in the past, what is the frequency of these falls and how long they last.
The most severe fall of the MICEX index:
- from 09.1997 to 09.1998 = for 13 months the MICEX index -80%. Russian default on government bonds (prolonged drop in oil/gas prices + unbalanced budget).
- from 03.2000 to 01.2001 = for 11 months the MICEX index -50%.
- from 05.2008 to 01.2009 = for 9 months the MICEX index -72%. The global financial crisis caused by the US mortgage crisis (capital outflow from Russia + short-term drop in oil/gas prices).
All falls of the MICEX index:
- Maximum falls (3): -80% in 1998, -50% in 2000 and -72% in 2008;
- In the range (-40% -30%) was ( 6 ) falls: 2001 (1), 2004 (2), 2006 (1), 2009 (1), 2011 (1);
- There were (7) falls in the range (-30% -20%): in 2002(1), in 2003 (1), in 2007 (1), in 2010 (1), in 2012 (1), in 2014 (1 ) and in 2017 (1);
- There were (11) falls in the range (-20-10%): in 2005 (1), in 2006 (1), in 2007 (3), in 2010 (1), in 2012 (1), in 2013 (1) , in 2014 (1), in 2015 (2),
- Corrections of less than 10% occur regularly.
More:
- Since the start of counting the MICEX index in 1997, there have been 3 strong falls: in 1998 (-80%), in 2000 (-50%) and 2008 (-72%) with a duration of 9-13 months. In order to protect your capital in case of such falls and be able to buy depreciating shares, you need to hold short bonds with a maturity of up to a year (preferably no more than six months) so as not to sell bonds on the market, the prices of which are also declining. Such drops in the index are, of course, rare occurrences, but no one will ever say what will cause the next global crisis and when it will occur.
- There has not been a decrease in the index in the range (-40%-30%) since 2011, although it happened earlier with a frequency of 1 time in 3 years for a duration of 3-5 months until further growth.
- In the range (-30%-20%), index falls produce with a frequency of 1 time in 3 years with a fall duration of 2-5 months. Such corrections, for example, were in the first half of 2017 and in 2014 after the aggravation of Russia's relations with the EU and the USA and the decline in oil prices, which led to the devaluation of the ruble and the Central Bank was forced to raise the key rate. It was difficult to get out of bonds in such a situation and one had to wait for a rate cut or redemption of short bonds.
- In the range (-20%-10%), corrections occur most often - every year and a half.
What conclusion can be drawn from this? It is important to remember that the lower the index value, the greater the share of stocks should be in the portfolio. Bond prices can drop significantly in the event of a global crisis with an index drop of more than 50%, and here (for those who shift from bonds to stocks) only a short period until the bonds are redeemed can be saved. In all other cases (corrections of -25% or less), as a rule, bonds decrease in price insignificantly and they can be sold at the market price without waiting for redemption. An exception to this may be the situation when the Central Bank raises the key rate in order to combat inflation (devaluation of the ruble) (remember 2014). Then the prices of bonds with a constant coupon may drop significantly, it will be uncomfortable to sell them at the market price and you will have to wait either for redemption or for a reduction in the key rate.
The strongest growth of the MICEX index was after the crisis falls of the index:
- from 09.1998 to 05.1999 = for 9 months the MICEX index + 650%. Prior to that, there was a historical decline of 70%.
- from 05.2005 to 04.2006 = for 12 months the MICEX index +187%. So far, there has been no decline.
- from 01.2009 to 06.2009 = for 6 months the MICEX index +129%. Prior to that, there was a historic decline of 72%.
What is better - to wait for the global crisis to buy stocks, buy on corrections or buy now?
Nothing can grow as much as something that has fallen. The strongest uptrends occur after massive declines and the ideal time to buy stocks is, of course, crises. In these moments (if you have the cash) you don't need to be a brilliant investor, just buy the biggest reliable companies. This can, for example, happen if a large fund that held a stake in a particular paper leaves a margin call. When will 2008 repeat? Due to the high interdependence of capital flows, problems in the US, China or elsewhere could lead to sell-offs around the world, including in Russia. Or will the aggravation of the confrontation between Russia and the West lead to a powerful fall? Will the global economy go into recession? Banned from investing in Russia? MSCI Russia index to be abolished? Will the US ban the formation of ETFs with Russian securities? Who, as long as there is enough imagination to come up with the reason for the next strong correction.
Sales, as in 2008, have to wait a very long time, especially since it will be very difficult for an investor to determine when to buy shares: on correction - 50% or - 60% or - 70%. But falls in the range (-30% -20%) are not so rare on the Russian market. In my opinion, any correction above 20% can serve as a good signal to buy more shares.
In my opinion, there are 2 main conservative investment approaches for a private investor:
- Wait for a correction above 50% to buy shares of the most reliable monopoly companies or promising companies that have fallen more than the market as a whole. While waiting for a crisis, keep capital in deposits or short bonds. Then 2 options: a) sell shares with a yield of more than 100%, as this is a very real trend after a strong fall; b) do not sell shares and accumulate dividends from these shares by reinvesting them in bonds or deposits and wait for the next fall in shares by 50% or more.
- Look for promising value stocks or dividend stocks that have upside payout potential (either through earnings growth or increased dividend payout base) and buy them when they are unfairly low and have upside potential. But then again - buy more shares on any correction over 20% (this happens every year and a half).
These two approaches above can be safely combined.
The main thing is not to rush to buy shares (especially when the MICEX rewrites the highs) and not to buy shares of unpromising companies just for the sake of diversification.
The safest option is the initial distribution in shares: 20% shares - 80% bonds. These 20% are formed from such dividend ideas as Lenenergo-p during the period of growth of indicators (which allows you to get a higher-than-market yield) or clearly undervalued and reliable shares (for example, Gazprom is below 135 rubles). Here, of course, there are also risks, but they always become less if you manage to catch the minimum prices. As such ideas appear on the market, the investor shifts from bonds to stocks, but still must leave some capital in case of global market drops, in which the investor completely switches to stocks, forming a portfolio with minimal risks with maximum growth potential.
What to avoid:
- Purchases of shares with a large "shoulder", as the question of your bankruptcy becomes a matter of time;
- Form a portfolio entirely from stocks when the Moscow Exchange index is near historical highs, since a correction of 20% or more is guaranteed and it is also only a matter of time.
Having scrolled down the table, you can see how much % the MICEX index fell relative to the previous maximum value and compare this correction with the previous ones. It's very sobering.
Novice investors often face this situation: they chose stocks, did everything right according to the methodology, but the stock price began to move in the other direction on the same day or even at the same minute. Most people immediately start to panic and think that they did something wrong, they made a mistake somewhere, etc. As a result, the investor begins to succumb to emotions and may make the mistake of selling good shares at an unreasonably low price.
In order not to succumb to emotions and act wisely and correctly in your investment decisions, you need to understand why stocks are falling. Today we will analyze the main reasons. And we divide them into 2 main classes of reasons:
Reasons not related to the deterioration of the situation in the company - speculative and market reasons.
The reasons associated with the deterioration of the situation in the company are real reasons.
At the same time, from the point of view of fundamental analysis and the principles of long-term investment, you need to react to what is happening only in the second case, because. in this case, either you made a mistake when analyzing the company at the stage of stock selection and did not take into account any important factors, or a force majeure event occurred in the selected company.
In practice, if you did everything right when choosing a company and carried out high-quality analytics, found an undervalued company with fundamentally strong performance and excellent prospects, then in the vast majority of cases, the fall in stock prices will be due to reasons that have nothing to do with the situation in the company. This means that such movements in the market are either just market noise, or are caused by events unrelated to the company itself and can simply be waited out.
Factors in the decline of stocks
In the beginning, we will analyze in more detail the class of reasons that arise with the deterioration of the situation in the company. This is exactly the field of work of the investor, when it is necessary to make decisions about further actions regarding these investments.
The Real Reasons for the Fall in Stocks
Here, in turn, we can divide the cause of the fall into two classes:
Causes associated with the deterioration of the financial position of the company.
The key role in this case is played by the quality of the fundamental analysis of the company: all its aspects are the analysis of the financial position of the company, the analysis of its business, and the identification of key directions for the development and growth of the company. At this stage, it is important to penetrate as deeply as possible into the essence of the company's business, draw the right conclusions and correctly extrapolate them to the company's future financial performance. If you did everything right here, this is already more than 90% of the success of this investment.
How to recognize these risks.
Of course, with a superficial analysis or analysis with insufficient knowledge, erroneous conclusions can be drawn about the company's prospects. You can recognize bad processes in a company by the negative dynamics of its financial statements. To do this, it is necessary to periodically monitor the company's financial statements and important decisions of the meeting of shareholders and the company's management, which are also published on the website in the section for investors. It is also possible to assess the risks of negative dynamics in the company based on the analysis of its reporting and business analysis. That is why a prepared investor will cross out this company from his investment shortlist in advance, at the stage of detailed analysis.
The best way to protect yourself from such risks is to constantly improve your skills and deepen your knowledge. The second way is diversification. If you have a basic initial knowledge of investments, then erroneous conclusions are possible, but the risk that you will be mistaken in all your investment decisions is minimal. Wrong conclusions on one company will be covered by correct conclusions and positive results on other investments.
Causes related to force majeure.
Every company has this kind of risk. At any plant, at any enterprise, something can explode, break down, natural and man-made disasters can interfere with work, various unpredictable conflict situations can arise, etc. At the same time, we consider situations where serious or irreparable damage is actually caused to the business and financial position of the company. There are such examples on the market and will appear in the future, but in fairness it must be said that there are actually not so many such examples.
Vivid examples of force majeure situations are the case with the Raspadskaya company, when a powerful explosion occurred at the main mine of the company.
The current most striking example of force majeure with a company is the situation with AFK Sistema. Rosneft filed a lawsuit against AFK Sistema for about 107 billion rubles, which was almost half of the company's capitalization, as a result, the shares fell by 40%.
How to recognize these risks.
That's why they are force majeure circumstances, that they are not predictable in any way and not a single most in-depth analysis will help to identify them in advance. But it is possible to assess the degree of possible occurrence of certain risk events in various companies and industries. And this can be taken into account when forming your investment portfolio. So obviously there are certain industry-specific risks of companies, the likelihood of which is higher due to the specifics of the business. This is, for example, the same coal industry with fairly high production risks. This is the transport industry, where unpredictable crashes and disasters with company transport are possible. In the financial sector, microfinance institutions and insurance companies are very risky businesses in their own right. Also, for example, companies can be divided into companies with state participation and private companies. In itself, such a division already gives an understanding that state-owned companies have less risk of conflict situations with power structures. Of course, all this does not allow us to exclude the risk of force majeure, but you can have an idea of the likelihood of its occurrence.
How to protect yourself from these risks.
The risk of force majeure actually carries a low probability. Therefore, the most effective way to neutralize these risks is diversification. At the same time, the wider the diversification of your investment portfolio, the better, the more effectively the risk of force majeure is reduced. At the same time, knowledge about potentially more risky industries can also be used in this direction, reducing the share of potentially more risky assets in your investment portfolio in advance.
Market reasons for the fall of shares
These reasons have nothing to do with the real deterioration of the situation in the company, but are related to the dynamics of the stock market as a whole or the macroeconomic situation in the country, in the region or in the world as a whole.
Such reasons for the fall of shares are also called systematic (or systemic) risks. These are risks that affect the entire market as a whole, that is, globally for all stocks without exception. As a rule, these are crisis phenomena in the world economy, various global geopolitical conflicts that can potentially affect the world economy or the economy of a large region. These are natural global cyclical processes in the world economy associated with various economic cycles. Production cycles, technological cycles, credit cycles, etc. Any cyclical process is characterized by both the lower phase of underestimation and the upper phase of overheating (or financial bubble). In this case, the upper phase of the economic cycle will represent a systematic risk for all markets.
One of the most striking examples of global systematic risk is the 2008 global financial crisis. Global risks affect most assets when everything falls and almost everywhere in the world. This has affected all equity markets in the world, both developed and emerging.
S&P 500 Index
How to recognize these risks.
Of course, systematic risks can also be in the nature of global force majeure, but in most cases they are visible to professional investors who track the dynamics of macroeconomic indicators.
If we take a closer look at a macroeconomic indicator that shows the ratio of capitalization of all markets to world GDP, we will see that all major and global bearish trends in the stock market over the past 30 years were preceded by several years of significant overheating of the stock market.
How to protect yourself from these risks.
Systematic market risks relating to individual countries or industries are offset by currency diversification of the portfolio and the compilation of cross-country portfolios. But the most effective protection against such risk, and even against global systematic risk, is to maintain a balance of risky and risk-free assets in the investment portfolio. Risky assets are certainly subject to its influence, and risk-free assets are fixed income instruments - highly reliable bonds. With their profitability, they can partially or completely neutralize the impact of global risk. At the same time, the balance of assets in the investment portfolio is not some kind of fixed ratio; it must be managed depending on the stage of the market and the economic cycle. This is exactly what allows professional investors to approach the turn of the crisis with the most protective investment portfolios and aggressively build up positions from very cheap risky assets during the post-crisis recovery phase of markets and the economy.
Speculative reasons for the fall of stocks
This class of reasons also has nothing to do with the real state of affairs in the company, but moreover, these reasons also have nothing to do with the real economy. This is the so-called market noise. This is something that investors deal with all the time and something that scares new investors a lot.
The reasons for the existence of market noise lie in the very nature of the modern stock market, more precisely in the structure of its participants. In order to fully understand the nature of this phenomenon and take it for granted, you need to answer one key question for yourself: who will sell you a good, undervalued and promising stock at a low enough price? We analyze, see such securities and can buy them almost every day. They are sold to us by those market participants who focus on completely different things, look in a completely different direction and buy with completely different investment horizons. The number of market participants is extremely diverse, these are classic long-term investors, these are large institutional players such as banks and investment funds, these are speculators of absolutely different investment horizons, from a few seconds to several months, and of course soulless robots - trading algorithms. It is the layer of speculative market players that gives us the opportunity to buy cheap shares that are good from an investment point of view, as they sell them to us focusing on completely different reasons: someone has a deadline for selling, someone is playing against the market, someone is hedging others the risks of this sale, and someone bought this stock 10 seconds ago with the goal of selling it now and making a profit of a couple of points. The reverse side of this phenomenon is that speculators actively move the market in completely different chaotic directions and sometimes quite significantly.
How to recognize these risks.
Market noise is always present in liquid stocks. On any stock movement cycle and under any circumstances. Market noise is also quite multifaceted, it is created by speculative market players who also focus on completely different phenomena and events. These can be rumors, fears and concerns regarding both companies and the economy as a whole, natural outflows and overflows of capital, forced closing of high-risk speculators by brokers and, of course, technical corrections. When a critical mass of participants accumulates, which has received its certain rate of return and wants to fix it, no matter what. As a result, short-term speculative players join the wave of technical sales and a technical correction develops. All these events and facts have different time intervals of influence, but as a rule, they are all short-term. therefore, for a long-term investor focused on fundamental factors, all of them form market noise.
How to protect yourself from these risks.
Professional investors don't even try to do this; instead, they just use market noise to their advantage. Since market noise is formed by many different random events and different reactions of players, it can be given a statistical expression. Or in other words, market noise can be measured using a statistical measure of the standard deviation or standard deviation over a certain period.
To do this, consider an illustrative example. During 2016, Alrosa demonstrated good dynamics in its financial statements and was underestimated from a fundamental point of view. Investors showed interest in the shares of this company, but despite the attractiveness of Alrosa's shares, the company's shares grew in a sawtooth curve. Growth gave way to local falls and technical corrections.
The average deviation from the central trend (it is also called the standard deviation) for this period amounted to 12.93 rubles or 14.05% of the current exchange rate. These values tell us that in a random order, the company's shares can, on average, deviate by 14% from their average value of the course.
Visually, this can be represented as follows.
Accordingly, the investor simply needs to understand that if the quotes of the company's shares are declining for no apparent reason in relation to the financial and operational indicators of the company itself, without facts of force majeure in the company and not against the backdrop of an overheated stock market, then these are natural movements of the stock and such corrections only improve the investment point of entry into the shares, allowing you to buy undervalued and promising shares of the company at a price below their average value. That is, at this point, the probability of their further decline is much less, and due to the decline that has already occurred, there is a certain increase in the potential profitability from the growth of shares in the future.
Conclusions.
We have looked at various reasons that can cause stock prices to decline. For most of these reasons, there are effective tools to deal with them. Therefore, in conclusion, we can summarize what an investor should have and what needs to be done for effective investment.
There are 3 key factors here:
1. Competence. It is necessary to have the required knowledge of financial and investment analysis in order to correctly recognize and anticipate really negative trends within the company. And vice versa, in order to correctly identify the positive dynamics of the company's development.
2. Basic investment rules. It is necessary to properly balance the investment portfolio and carry out its effective diversification in order to minimize the risks that can be dealt with using this tool.
3. Psychological stability, a correct understanding of the current situation, the adequacy of expectations. It is necessary to learn to pay attention only to the change in those factors that influenced the adoption of a positive investment decision and to filter out events that do not have a direct impact on the real results and company valuation.
It is also necessary to understand that investments are long-term processes that often require endurance, patience and psychological stability from the investor. As an illustration of this, let's take an example from the book "Fooled by Chance" by the famous fund manager Naseem Taleb. It gives an example of modeling an investment portfolio with an expected return of 15% per annum and an average deviation of results of 10%. The purpose of the simulation was to show how market noise can interfere with portfolio development.
As a result, if you do everything right and work with risks, then in the medium and long term, portfolio investment tends to the average profitability profile included in the portfolio. At short-term intervals, market noise and random factors interfere with quotes, and this is an absolutely natural process.
It follows from this that it is necessary to be aware of the expected result in the future and correctly perceive the investment horizons of the portfolio.
It is important to understand that smart portfolio investing is a process where meaningful actions lead to positive results. Therefore, the key factor for successful investments from all of the above is knowledge. Unlike, for example, Forex, pamm-accounts and other high-risk ways of earning, where any attempts to predict profitability and quotes are more like shamanism and flirting with fortune.
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Profitable investment to you!
Good day, my dear reader!
We have already talked with you about what an action is. For many, it is not much of a problem to calculate when to buy shares, but selling them is much more difficult.
Here are seven rules, following which you can close positions with minimal losses.
Rule 1. The stock falls by 7-8%.
The most important rule is to "dump" stocks that have fallen 7-8% of their purchase price. Closing positions with minimal losses helps you save capital and protects you from big losses. Let's say we have a portfolio of stocks.
| Stock symbol | Number of shares | Purchase price | Selling price | Profit/ lesion | Profit/ lesion |
| A | 100 | $50 | $46 | -$400 | -8% |
| B | 100 | $43 | $40 | -$300 | -7% |
| C | 100 | $57 | $98 | $4,100 | 72% |
| D | 50 | $24 | $22 | -$100 | -8% |
| E | 30 | $110 | $101 | -$279 | -8% |
| F | 70 | $85 | $78 | -$490 | -8% |
| G | 100 | $65 | $79 | $1,400 | 22% |
| Total: | $3,731 |
Here you can clearly see that selling stocks with losses of no more than 8% helps to have a good income, despite the fact that 5 out of 7 stocks were unprofitable.
For individual investors, closing positions with minimal losses is the golden rule.
Even in a rising market, investors must remember that not every breakout ends successfully. Some stocks rally in the later stages of a breakout, but can reverse sharply and fall quickly. Such behavior is one of the main sell signals. Although other stocks may form a "cup" or "double bottom" pattern.
Whatever the cause, close positions first and ask questions later .
One of the necessary conditions for success in the stock market is to close unprofitable positions with small losses, as well as holding profitable positions at their maximum.
Closing out losing positions in every stock with poor returns is the best defense against companies that misinform, deceive, or overestimate their prospects and future earnings. If the company goes bankrupt, chances are high that your shares will be worth a penny. As one of millions of investors, you will not be able to influence the lawsuit.
Institutional investors are another matter. They can use their connections and financial resources to recover losses through the courts.
When stocks don't meet rosy forecasts, some fund managers sell stocks of companies in a flash. This is why rising stocks can fall so hard and so quickly. Prompt closing of unprofitable positions prevents the growth of losses up to 15, 25, 40 or more percent.
Rule 2: New highs on low volume.
Trading volume is a great way to determine whether a rise or fall in a stock's price is real. The more shares bought, the more demand. However, when a stock makes a new price high on less than normal volume, this indicates that demand is decreasing and the stock may reverse.
New price highs on light volume are early sell signals.
Most investors want the stock they own to rise and continue to set new price highs. However, if the growth occurs on low volume, you should be on the lookout.
Stock setting new price highs at high volume, indicates that investment funds and other serious players are likely to buy up these shares. And since these institutional investors make up about three-quarters of the market volume, you want to be on the same side with them.
However, stocks rising to new heights at low volume, indicate a loss of interest from the "big money". Institutional investors, on the contrary, may start to sell, which can lead to a sharp drop.
This does not mean that you should exit positions as soon as the price makes new highs on low volume, especially in the early stages of a move following a recent base break. But if the trend continues, you will most likely want to close at least part of the position and watch for other sell signals.
Rule 3: The stock price is flying too high, too fast.
Some stocks, especially the most successful ones, tend to end up tragically. They soar upward like never before, then plummet. This "climactic spurt" occurs when, after a sustained rally, a stock soars 25 to 50 percent or more in just one or three weeks on increasing volume.
Many stocks of large companies end their growth with a climactic spurt.
The situation in which the price of a stock rises too quickly too high does not seem to be a problem. However, if the stock "shoots" even higher in a short period of time after a significant increase following the breakout, then it may soon reach its upper limit.
Leading stocks often take off "at the speed of light," a situation called a "climactic limit" or "rooftop blowout." Excited investors push the stock price to the boiling point. A stock often ends its climactic run with its highest single-day profit since the breakout. Selling during this period will maximize your profit.
Why don't you want to keep holding the position? If a stock moves up too much, too fast, it is likely to fall sharply, often quickly. And if a company's fundamentals slow down or start to fall, the stock may never rise to its maximum value again.
If the stock price has already risen strongly since its breakout, then what are the signs of a climactic takeoff? Watch for when it grows 25-50 percent or more in one to three weeks with increasing volume. If you see that the open was much higher than the previous close (exhaustion gap) during this period, then the stock may already be making its high.
Rule 4. The 200-day moving average is in a downtrend.
With the help of many different charting programs on the Internet, you can compile the average price of a stock for different periods. The 200-day moving average has become a type of comparative indicator as a trend indicator over a long period of time. Historical studies show that those stocks that "go" below this line are likely to continue their move down.
Take profits when the 200-day moving average is down.
If you own a stock that has a long-term uptrend, you still need to decide when to sell. This is difficult to do without the use of a graph. In such cases, the 200-day moving average not only helps to calculate where the support line is located, but can also serve as a timely sell signal.
The stock chart, crossing its fifty-day moving average, gives a sell signal. The stock may bounce back from this line if mutual funds and other large market players buy or add shares to positions.
If the price of a stock rises over months and years, then the 200-day moving average, which reflects the 40-week value of the behavior, becomes more useful. If a stock approaches or stays close to the line but bounces off of it, it is likely that institutional investors still see the stock as an attractive investment.
However, if the 200-day trendline begins to turn lower after a sustained advance, consider selling the stock. By this time, demand for shares among major players no longer exceeds supply. When a stock starts having trouble holding above the line, it's best to lock in at least some of the profits you've made.
Rule 5: Industry leaders start to struggle.
The state of the industry is best reflected by stocks - industry leaders. Find one or two stocks with the best financial growth and profitability. If the leaders start to decline, then most likely other stocks in the same industry will also begin to move down.
Leading stocks determine the fate of the sector.
Want to know what the future has in store for your action? Follow the leaders. Leading stocks are a barometer of market health. They also show you how a given industrial group behaves. New high-growth companies will always break out of the baseline before investors get past the bear market. If these new companies prosper, Wall Street buys their associates. If they wither, then the market will also get rid of competitors' stocks like weeds.
Recently, the market has produced more weeds than winners. Full of promises, the Dow, Nasdaq and S&P 500 indexes, having soared up, turned in the opposite direction. Stocks that seemed to be in a stable state (excellent fundamentals, compelling charts and colorful growth forecasts) are crashing and crashing.
To avoid such unpleasant surprises, keep a close eye on group leaders. If the stocks of leading companies start to fall, be prepared to dump your stocks.
Rule 6: Selling by institutional investors hits the market indices.
Institutional investors represent a large amount of money that flows through the stock market. It's immediately noticeable when these investors sell: the major indexes are moving lower on huge volumes compared to the previous session. Four, five or more of these distribution days over a period of three or four weeks always signal a market high.
The influx of institutional selling heralds a market correction.
Whether you've just started investing in stocks or have been doing it for decades, make sure you understand the importance of allocation days. A distribution day occurs when one or more of the major stock indexes falls significantly on more volume than the previous day. If you notice one or more of these signals within one or more weeks, consider this a harbinger that the market may change course after a long rise.
Rule 7. Check your watch list
The growth of earnings per share is one of the most important indicators in determining the "luckiness" of the stock. Profit also signals a downward movement of the stock. Be especially wary of stocks where earnings-per-share growth has slowed significantly for two consecutive quarters.
A sharp slowdown in earnings-per-share growth could signal a sell-off.
By relying solely on rising earnings as a timely sell signal, you can get out of a position much later than the stock has broken. While a company's earnings report is published every three months, a leader can collapse in just a few weeks or even days. This does not mean that you should forget about profit once you have bought a share. In fact, there are times when earnings growth can slow down before a stock shows signs of weakness.
04/10/2018, Tue, 09:46, Msk , Text: Igor Korolev
The fall in the shares of Russian companies did not pass by telecommunications operators and Internet holdings. During the day, the capitalization of Veon, MTS, MegaFon, Yandex, Mail.ru Group and others fell by $4.85 billion.New US sanctions hit Russian companies
The new ones introduced by the US Treasury Department against a number of Russian entrepreneurs, government officials and companies hit the Russian stock market, as well as the quotes of Russian companies abroad, painfully. The RTS index fell by 11.4%, the Moscow Exchange - by 8.3%.
How stocks and capitalization of high-tech companies fell
The fall affected Russian companies from the telecommunications and Internet sectors. American Depository Receipts (ADRs) for shares of Mobile Telesystems (MTS) fell 11.6% to $9.72 per receipt, the company's capitalization dropped $1.13 billion in a day.
Shares of Yandex (the owner of the Russian Yandex) on the American NASDAQ stock exchange fell by 9.7% to $35.57 per security . The company's capitalization decreased by $1.13 billion in a day.
Quotes of global depositary receipts (GDR) for shares of Mail.ru Group on the London Stock Exchange fell by 10.8% to $33 per receipt. The capitalization of the company decreased by $880 million.
For the first day of exchange trading after the announcement of new sanctions
total capitalization of Veon, MTS, MegaFon, Yandex, Mail.ru Group and others
fell by $4.85 billion
The GDR rate for MegaFon shares, also traded on the London Stock Exchange, fell by 10.46% to $8.9 per receipt. The capitalization of the company decreased by $644 million.
The Veon group, which operates in Russia under the Beeline brand, had its stock quotes on the NASDAQ stock exchange drop 13.8% to $2.3 per security. The capitalization of the company fell by $579 million.
At AFK Sistema, the controlling shareholder of MTS, GDR on the London Stock Exchange fell by 9.5% to $3.55. The capitalization of the company decreased by $178 million.
At the Qiwi payment system, shares on the NASDAQ exchange fell 5.44% to $17.5 per security. The capitalization of the company decreased by $67 million.
Shares of Rostelecom on the Moscow Exchange fell by 4.6% to 64.6 rubles. The capitalization of the company fell by 7.3 billion rubles. Taking into account the official exchange rate of the Central Bank as of April 10, 2018, 58.57 rubles per $1, this amount is $124 million.
Thus, in just one day, the capitalization of Russian telecommunications and Internet companies on Western stock markets fell, according to CNews estimates, by $4.72 billion. Taking into account the fall in Rostelecom shares on the Moscow Exchange, the total losses of these companies in capitalization amounted to $4.847 billion.
Luxoft "in the house"
At the same time, the offshore software developer Luxoft, which separated from the Russian IBS group, practically did not notice the fall in the stock market. The company's shares on the New York company fell only $0.3 to $39.5. Apparently, this is due to the company's strategy, which has been positions itself like an international one.
The fall of the market as a whole
In general, the capitalization of the Russian stock market has decreased by 820 billion rubles, calculated in RBC. The fall leader was Rusal, which, together with its main owner Oleg Deripaska came under sanctions. The company's shares fell 19%.
The shares of the gold mining company Polyus, owned by another new person on the list, Suleiman Kerimov, fell by 16%. According to Forbes magazine, the wealth of the 50 richest Russians decreased by $11.7 billion in a day.
Including Oleg Deripaska and the owner of Norilsk Nickel Vladimir Potanin(not included in the sanctions list) lost $1.7 billion each. Viktor Vekselberg, another newcomer to the sanctions list, lost $908 million, Suleiman Kerimov - $813 million.
The national currency also felt the fall. The euro exchange rate on the Moscow Exchange rose to 75 rubles, against the dollar - above 60 rubles.
April 6 The US government imposed sanctions against Russian companies and businessmen. If a company or individual is sanctioned, their money in US accounts is frozen. All legal entities and individuals working with companies from the sanctions list will also fall under the sanctions.
April 6 is Friday, and when sanctions were imposed on the United States, the Moscow Exchange was already closed. The stock exchange does not work on weekends, so investors patiently waited for Saturday and Sunday, but it started on Monday morning. It looks like foreign capital is leaving the Russian stock market. Foreign investors and funds do not have time - they sell shares at the market price and record losses. It all started with the fall of the shares of Oleg Deripaska's companies last Friday, and on April 9 the Russian stock market was completely different.
Sergei Shabolkin
private investor
Investors are panicking in chats, specialized sites are predicting a new world order, and we will take a cup of green tea and learn useful lessons.
1. Don't put your eggs in one basket
If you're building a portfolio yourself, then you know the "don't put all your eggs in one basket" rule. But one basket is not necessarily one industry. The risk also depends on where the company's revenue comes from, to whom and what they sell, and what their main indicators depend on.
NLMK and Severstal produce steel. NLMK received 19% of sales revenue in the US, Severstal - 2%. And the management of Severstal said: we will redirect exports to other countries. NLMK's revenue may fall due to duties, while Severstal's is unlikely.
In terms of risk distribution, there are no recipes. They just need to be distributed as widely as you can.
2. Calculate multipliers
Oleg Deripaska's companies had the worst of all - Rusal's shares fell by 40% on the Hong Kong stock exchange and by 27% on the Russian one. If you look at the statements and calculate the multipliers, we will see that Rusal has $8.6 billion in loans and borrowings.
Debt/EBITDA greater than 5 means that under ideal conditions a company needs 5 annual earnings to fully cover its obligations. Without sanctions, the company was heavily indebted, now it will be even more difficult for Rusal to get new loans to cover current liabilities.
In my subjective and cursory glance, companies with bad multiples have fallen more than others.
Obviously, the stock market is a huge trading platform in which the price is the subject of speculation. But no one has canceled the natural indicators of a business: how much it earns and on what. An overvalued business with bad multiples is more prone to fluctuations than an undervalued business with good multiples.
I didn't say it, but Benjamin Graham, Warren Buffett's teacher and author of The Intelligent Investor.
3. Close browser and telegram
In three hours, my Russian portfolio fell 4.5% and then almost returned to its original value. During this time, I read 1000 telegram messages, 20 posts about the stock market crash, but this did not help me in any way increase the income of my portfolio.
All I can do in this situation is count the multiples and distribute the risk. Everything. Hysteria in telegram is fun, but does not bring income.
How to continue to live
No one knows the future, but for the next few days it is better to put your audacious investment ideas on hold. Today's drop in stocks on the market may scare you away from investing. But you can invest not only in securities - you can invest in yourself:
- Or maybe bitcoin? But first, think thrice.
