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It is always important for investors to understand how much the Moscow Exchange index can fall, what falls were in the past, what is the frequency and duration of these falls.
The strongest drops in 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%. World financial crisis caused by the American mortgage crisis (capital outflow from Russia + short-term drop in oil / gas prices).
All drops in 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);
- In the range (-30% -20%) there were (7) falls: in 2002 (1), in 2003 (1), in 2007 (1), in 2010 (1), in 2012 (1), in 2014 (1 ) and in 2017 (1);
- In the range (-20-10%) there were (11) falls: 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 details:
- Since the beginning of the calculation of 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... To secure your capital in the event of such falls and to be able to buy stocks that are falling in price, you need to keep 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, prices for which are also falling. Such falls in the index, of course, are rare, but no one will ever say what will be the cause of the next global crisis and when it will happen.
- There has not been a decrease in the index in the interval (-40% -30%) since 2011, although this happened earlier with a frequency of 1 time in 3 years for a duration of 3-5 months before further growth.
- In the range (-30% -20%), falls in the index produce with a frequency of 1 time in 3 years with a duration of a fall of 2-5 months... Such corrections, for example, were in the first half of 2017 and in 2014 after the aggravation of relations between Russia and the EU and the United States 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 one and a half years.
What conclusion can be drawn from this? It is important to remember that the lower the index value, the more stocks should be in the portfolio. Bond prices may drop significantly in the event of a global crisis with an index falling over 50%, and here (for those who switch from bonds to stocks) salvation can only be a short period until the bonds mature. In all other cases (corrections -25% or less), as a rule, bonds in price decrease insignificantly and they can be sold at the market price without waiting for maturity. An exception to this may be the situation when central bank in order to combat inflation (devaluation of the ruble) increases the key rate (remember 2014). Then the prices of bonds with a constant coupon may significantly decrease, it will be uncomfortable to sell them at the market price, and you will have to wait either for maturity or for a decrease. key rate.
The strongest growth in the MICEX index was after the crisis falls in the index:
- from 09.1998 to 05.1999 = for 9 months the MICEX index + 650%. Before that, there was a historic decline of 70%.
- from 05.2005 to 04.2006 = for 12 months the MICEX index + 187%. Before that, there was 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%.
Which is better - to wait for the global crisis to buy stocks, buy on corrections, or buy now?
Nothing can grow as much as what has fallen. The strongest uptrends occur after strong declines and the ideal time to buy stocks is, of course, crises. In these moments (if you have cash) you don't need to be a genius investor, you just need to buy the largest reliable companies. This can, for example, happen if a large fund is marginalized, which held a stake in a particular security. When will 2008 repeat? Due to the large interdependence of capital flows, problems in the United States, China or other countries can 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 start to decline? Banned from investing in Russia? Will the MSCI Russia Index be abolished? Will the US ban the formation of ETFs with Russian securities? Who has enough imagination to come up with a reason for the next strong correction.
Sales, like in 2008, have to wait for a very long time, the more 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 interval (-30% -20%) are not such a rarity for Russian market... In my opinion, any correction over 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 of more than 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 the crisis, keep capital in deposits or short bonds. Then there are 2 options: a) sell shares with a yield of more than 100%, since this is a very real trend after a strong fall; b) do not sell shares and accumulate dividends from these shares, reinvesting them in bonds or deposits and wait for the next fall in shares by 50% or more.
- Look for promising shares of value or dividend securities that have the potential for growth in payments (due to an increase in profits or an increase in the base for paying dividends) and buy them when their price is unreasonably low and have upside potential. But again - buy shares for any correction over 20% (this happens every year and a half).
These two above approaches 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 allocation in shares: 20% of the stock - 80% of the bond. This 20% is formed from such dividend ideas as Lenenergo-p during the period of growth of indicators (which allows obtaining profitability above market) or clearly undervalued and reliable shares (for example, Gazprom is below 135 rubles). Here, of course, there are risks too, but they always get smaller if you manage to catch the minimum prices. As such ideas appear on the market, the investor switches from bonds to stocks, but still must leave some of the capital in case of global market falls, in which the investor completely switches to stocks, forming a portfolio with minimal risks with maximum growth potential.
Things to Avoid:
- Buying shares with a large "leverage", since the issue of your bankruptcy becomes a matter of time;
- To 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.
Scrolling 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. This is very sobering.
Trade securities on the verge of a sharp rise can bring a solid trader. If a trend reaches a new high or overcomes a resistance level, it attracts the attention of investors and trend speculators, which gives the price good ground for significant growth.
The great thing about trend speculation is that it only focuses on a few indicators, such as trend, price, and, and only needs to keep a close eye on them on the chart.
This strategy has long been mastered on Wall Street and is called "breakout trading". It has been honed by legendary traders such as William O "Neal, Stan Weinstein and Nicholas Darvas.
Below are the shares of 5 pharmaceutical companies that have all the prerequisites for a significant rise.
The first company to see its shares close to the nearest resistance level and have all the chances to make a price break is Alphatec (ATEC), which designs, develops, manufactures and markets technologies for the surgical treatment of diseases of the spine around the world. Six months ago, most of the holders of the company's shares got rid of them, as a result of which their price fell by 83.3%.
The chart shows that at the end of November, Alphatec's share price, which had been more than $ 1.2 before the August collapse, reached a new 52-week low of $ 0.21 per share. However, on Thursday, the trend reversed and broke the 20-day moving average of $ 0.23, and the volume of transactions increased sharply. Trade turnover intraday reached 779,000 shares and exceeded the three-month average of 315,444 shares. Such a sharp spike will almost certainly provoke the start of active trading on breakouts and the overcoming of new resistance levels by the price.
If Alphatec manages to break the resistance levels at $ 0.26 and $ 0.28, and then the 50-day moving average at $ 0.29, it will serve as a signal for traders to open long positions. If this happens, the company's shares may jump even more and break through the next resistance levels up to $ 0.45 or even $ 0.53.
In anticipation of the coveted rise, it is worth playing it safe and placing a stop order at the last support levels at $ 0.21-0.22. In case of a successful outcome, the stop order should be moved according to the price increase.
Another company that is expected to rise quickly is Agios Pharmaceuticals (AGIO). The bearish "smeared" Agios shares, as a result of which over the past six months they have fallen in price by 54.9%.
Looking at the company's chart, a recent gap is clearly visible, pushing the price from more than $ 60 to a new 52-week low of $ 48. However, then Agios Pharmaceuticals stocks rebounded sharply, breaking away from a $ 48 low; at the same time, the volume of transactions increased. If the price overcomes several key levels resistance, this will create fertile ground for trending speculators to buy stocks.
If the price passes the resistance level of $ 55, traders will immediately begin to open long positions, which will entail an increase in the trading volume. If Agios is able to make this breakout in a short time, the company will have every chance to fully recoup the losses of the recent landslide gap and return the price to the level of $ 60, which promises good profits for traders who opened positions on time.
The next company is Inotek Pharmaceuticals (ITEK), which specializes in the development and commercialization of drugs for the treatment of glucoma. Inotek shares skyrocketed over the summer, up 93.4%.
Looking at the company's chart, one can notice the recent formation of a "double bottom" pattern from $ 10.05 to $ 10.01, accompanied by a significant decline in demand for shares. However, on Thursday, the price broke to the support level and broke both the 20-day moving average of $ 10.99 and the 50-day moving average of $ 10.77 per share, which increases the likelihood of further growth.
If Inotek Pharmaceuticals can break through the resistance levels of $ 12 and more, it will make the stock attractive to trade breakouts, which will increase the volume of transactions and push the price to new heights. It is worth noting that the sooner this breakout occurs (if at all), the more chances for Inotek shares to break through the seemingly unattainable resistance levels at 13.36 and even $ 16.
The next candidate for a fast spike is pharmaceutical Valeant Pharmaceuticals (VRX). Over the past six months, bearish trades have plunged its stock by 57.5%.
The chart shows that Valeant's trend reversed sharply in November, and the company's stock rose from a 52-week low of $ 69.33 to an almost two-month high of $ 101.93. Since the trend reversal, price has generally set higher and higher lows and highs, which is a sign of bullish price action. Everything is the same here: if stocks continue to break through resistance levels, this will attract speculators on breakouts and will push prices higher and higher.
The last company on the list to look out for is Spectranetics (SPNC), whose chart also shows a 46.5% decline two months ago after a few months ago. If the price does not fall for some time and breaks through several resistance levels, there is a great chance that its growth will become even more significant.
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Hello. Please explain why stocks rise and fall. It is clear that everything depends on the number of buyers and sellers in the market, but why do investors decide to buy or sell? What influences their decision?
Anatoly
Anatoly, to put it simply: when investors see that the company's business is expanding, and profits are growing and there is no apparent reason for a fall, investors buy shares. Demand rises - the share price rises. And vice versa: if it is clear from the news that the company will have problems with profit, the shares are sold.
Sergey Shabolkin
private investor
Let's take a look at some specific examples.
Economic situation
When news comes out that could affect the company's business, investors react by buying or selling shares.
April 7, with which you cannot work - otherwise you will be subject to sanctions. On April 9, foreign investors started selling Russian shares.
Russian investors were also afraid of sanctions: a short-term panic began - almost all shares fell in price that day. Then some investors came to their senses: a share is a share in a business, which means that a shareholder can receive dividends.
Who remembers that - bought shares and expects a high dividend yield. Some companies took advantage of the panic and bought back their shares from the market.
Another example: in March Then it seemed that NLMK would suffer from the sanctions: the company has its factories in the United States and 18-20% of its revenue comes from North America. Investors sold NLMK shares - the share price fell, although the management said that the sanctions would have little impact on the company's operations. Check the words of the management when the NLMK report for the second quarter of 2018 is released - then the effect of the sanctions will be visible.
Together with NLMK, shares of other metallurgical companies fell - MMK and Severstal. But the former does not sell steel to the United States, while the latter has only 5% of sales to North America.
Reporting results
The share price can rise or fall when a company issues financials with a result higher or lower than the expectations of the shareholders.
On February 22, 2018, the Lenenergo report for 2017 was released: profit increased by 66%, to 12.6 billion rubles. Experienced investors knew: 10% of the profit under the charter must be directed to dividends on preferred shares.
Investors took out calculators and calculated the potential dividends per preferred share - it turned out to be RUB 13.48. On February 22, the share cost 87 rubles, the dividend yield was 15.5%. Considering that deposit rates are falling, the profitability is high. Investors started buying preferred shares of Lenenergo, and the price rose by 17% in four days - to 102 rubles. Smart investors looked at quarterly earnings and counted potential dividends back in mid-2017.
Reverse example. In October 2017, Magnit released a report for 9 months of 2017: profit fell by 53% compared to 9 months of 2016. In the three days after the report was published, the stock fell 20%. At the end of 2017, profits fell by 32%, and with them dividends: they depended on profits.
But these are two radical examples. Usually good companies show profit growth of 10-20% in each quarter compared to the previous year. By the end of the year, some investors remember the company's shares and start buying them. But you can be smarter and follow the companies' quarterly reports.
Redemption of shares
Companies can buy back their shares from the market - this shows investors that management is confident in the company's business. A big buyer (company) comes to the market and starts buying shares. There are fewer shares when the demand is formed - the share price is growing.
The company does not buy back shares immediately, but in small tranches. The effect of the share buyback stretches over 3-6 months. It all depends on the amount and duration of the ransom. For example, Starbucks plans to buy back $ 20 billion of shares by 2020, which is 27% of the current market capitalization.
Debt repayment
It often happens like this: the company has a lot of debts, it has just started to make a profit. Novice investors expect high dividends, and the management directs them to pay off debts.
Paying off debt is good for a long-term investor. The company pays off loans and stops paying interest to banks. In the long term, this leads to an increase in profits. Debt repayment affects the share price if the company has a lot of debts - this can be found by the debt / EBITDA multiplier. For June 2018, applicants for serious debt repayment are IDGC of the North-West and IDGC of the South.
Incidents
Industrial accidents are a problem for all industrial companies. The more severe the accident will affect the production of raw materials, the greater the potential drop in profits and share prices.
On August 4, 2017, an accident occurred at the Mir diamond mine: the mine was flooded and it became unsuitable for diamond mining. The mine is owned by Alrosa. The problem with diamond mines is that there are few of them and in order to start mining, you need to develop the area. Alrosa lost the mine until 2022, and with it the profit from the mine. Now the company has to sell inventory.
These are not all cases due to which the price of a stock rises or falls. The general conclusion is this: anything that can help increase the revenue and profit of a business is good; anything that can harm is bad. Investors react to good and bad by buying or selling stocks.
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