Earlier this week, Mark Gardner from Maqro Capital told me the stock market is ‘the only place in the world where people get upset when it suddenly goes on sale.’
And to be fair to the rest of us, it is hard to get in the mood when the phone rings off the hook and everyone you know and love is sweating bullets.
One doesn’t tend to punch the air and massage the wallet when the headlines scream of Black Mondays, The Coronavirus Crashes or Just Bloody Awful Thursdays.
So Mark says a kinder, saner approach should be to look at it the same as any other garden variety sale. Sort of, ‘hand the kids the iPad and go pick up some cracking bargains’.
Being well-trained fans of retail – cracking consumers that we are – everyone already knows the usual, familiar cycles:
Christmas sales, EOFY sales, Easter for chocky… The Other Black Monday (the buying one) is certainly in vogue.
China’s quietly insane Singles’ Day is a rather newbie, actual shopping holiday dedicated to celebrating single-hood (and the gifts the unattached feel they really merit).
This one was imagined up in 1993 by lonesome Nanjing Uni students. As Singles’ Day’s ironic popularity grew among uncoupled Chinese youngsters, in stepped the e-commerce giant Alibaba, which cunningly adopted it as its flagship splurge day in 2009 and off they went.
So I thought I’d corner Mark, Maqro Capital’s head of investment and senior private clients adviser about how to approach the equity sales cycle, how to plug-in and how to keep the best of your cash in the safest places, ready for the next splurge-a-thon.
Off the bat Mark said:
“Don’t get all forest for the trees when everything goes bust. Buying on some of the worst 10 down days in 2008 and 2020 have actually been the best 10 buying opportunities in the last 20 years.”
What follows is Mark G, verbatim, except for the italics and the bit about Mariah Carey…
Mark Gardner goes shopping
Hi. So, the best way to handle a downturn in the market is to prep just like you might before you head off and go Christmas shopping – know where you’ve stashed the cash during the year, make a clear list ahead of time and avoid any spur-of-the-moment decisions.
The first thing you need to do is work out how you want to allocate your money, dividing the capital into what I’m going to call Baskets which not only sound cool, but which have different timeframes and investment return expectations.
Basket 1 – All the boring stuff. The long-term; solid yields; low PE; thumping balance sheets; strong track record; and stellar management.
Basket 2 – Thematic trades. These ideally target a 1–2-year time horizon. They cover the broader emerging trends; the early-stage businesses; the high-potential growth phase stocks.
Basket 3 – The quick wins. We’re getting active here. A one week to one-month turnaround; the oversold opportunities; the companies with decent fundamentals; but applying very strict trade parameters of entry price; stocking to a target price; and most importantly, stop-loss.
Once you’ve chosen how much you want to allocate to each Basket, start making your stock selections, they fall in pretty neatly from here:
Basket 1: Is a bit of a no-brainer.
In the ASX 200 there’s a well-beaten path and well-beaten for good reason: You might choose from among the ever-reliables:
BHP (ASX:BHP), CSL (ASX:CSL), Macquarie Bank (ASX:MQG), Wesfarmers (ASX:WES), Computershare ASX:CPU)
Basket 2: Your pick of thematics and early stage opportunities (here I’ve gone with some easily identifiable current themes):
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EV thematic – Pilbara Minerals (ASX:PLS), (ALLKEM (ASX:AKE), IGO (ASX:IGO)
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Nuclear Thematic – Paladin (ASX:PDN), Boss Energy (ASX:BOE), URNM ETF
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Early stage – MoneyMe (ASX:MME), Polynovo (ASX:PNV)
Basket 3: The companies you feel have been sharply oversold on the fall. The bargains. If uncertain of the pedigree, refer to the stocks you know and trust among the above. Go ahead and make some short-term overweight allocations.
Going the nuclear option
Thematic trades like uranium are tricky to play because they are based on sentiment, not results, making them vulnerable to the downside in highly volatile times. Many of the ASX uranium names, PDN, BOE, BMN, and AGE, fell 40%-60% over the course of the May-June rout this year, then swiftly reversed, went back towards highs and now sit somewhere in the middle.
This makes it hard for those who don’t have “diamond hands” to hold on while the market swings back and forth.
The movement is due to the fact that prices were elevated on promised future earning capacity, rather than being profitable now and promises aren’t good enough in a bear market and on the ASX we are blessed with plenty of options of companies that “are going to produce” with BOE likely first past the post in 12 months and PDN coming in a close second, but not so much in producer category.
For those that want to dip their toe in the water, Betashares has a solution with the recently launched URNM ETF.
Normally I’m not a fan of thematic ETFs but in this case, the lack of producers on the ASX makes this product a good option for those who want exposure to the trend, but not the volatility.
The ETF is 50% made up of three of the world’s biggest producers, NAC Kazatomprom JSC, Cameco and Uranium energy along with the physical uranium hoarder, Sprott. The other 50% is then a who’s who of the next-in-line producers Paladin, Boss Energy and emerging explorers Alligator (ASX:AGE), Bannerman ASX:BNM), Elevate (ASX:EL8)… the list goes on.
While the market has historically high volatility and geopolitical situations cause energy issues, having diversified exposure is a good way to safely play the space and then branch out into the individual stocks when things calm down and names like BOE and PDN come closer to their first production dates.
Pick your levels, in advance
The key to planning a shopping list is to be organised in advance. Don’t arrive at the record store and then ask yourself what your daughter’s favourite band is. That way lies Mariah Carey.
Do not (at least try) to not go off and be reactive. The problem with being reactive is that you’re a bag of emotions in a land that exploits them. Half the reactions you have are emotional and you don’t even know it. Like being stubborn, obdurate, angry, FOMO, tired, and/or panicky. That way lies relative selling at lows and missing a buy opportunity because you’re still caught up in the broad fear swelling across the market.
Now, if you trust your thematics, but can’t decide on individual stocks – there’s a lot of them – or perhaps he market is too fast, finicky or volatile for you to confidently manage – and there’s quite a few balls in the air, remember (like all of the orders, the target prices, the pace of movement through a session), then there’s a quick fix for that which can tide your over.
The simpler solution
Yep. Go the ETF. And why not?
ETFs are a smart play, if not the glamorous option and I’m definitely not against the occasional exchange traded fund. ETFs provide a little thematic insurance – you like your idea , you’re confident it has legs (ie: electric vehicles are coming) but you’re not absolutely sure of the granular detail.
The ETF goes a low-cost route and offers your Basket a basket of stocks and thusly increased diversification.
For most of us individual investors, ETFs are a cracking little asset for a diversified portfolio where you can still try and take advantage of a dip and then sell out of your ETF and buy into your individual picks later when the market calms.
Make a real plan, get ahead of the trouble
As I said, buying on some of the worst 10 down days in 2008 and 2020 have actually been the best 10 buying opportunities in the last 20 years, but you will only profit if you are organised and well planned, so build a list, stick to your plan and ignore the noise and you may start to look forward to pull backs rather than fear them.
Mark Gardner is all about active investing and trading recommendations for leading Australian investment research, trading and advisory firm, Maqro Capital. He sits on the Maqro Investment Committee and has over 25 years experience in financial markets, starting his career on the SFE trading floor as a broker, before spending the last 16 years as a professional trader. Mark previously was the owner of proprietary trading firms, Genesis and Aliom trading. He also served as the founding president of the Australian Securities Trader Association (ASTA) for 10 years.
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