When Will The Stock Market Crash?

Cash is a dreadful investment. Especially right now. Low interest rates and inflation mean cash goes backwards as an investment. And yet I find myself with too much cash. What I need is a stock market crash - an opportunity to put my excess funds to work.

But Don't I Like It When The Market Goes Up?

Like everybody else, I feel good when the value of my portfolio increases.   It's human nature. But the reality is that while I’m still putting money into the stock market, I should prefer lower prices. It means I get more for each dollar invested. Of course, the opposite is also true. When I start to draw down on my investments, a sudden drop in prices could be more than a little unnerving.

Am I Predicting A Stock Market Crash? 

Australian Exchange Traded Fund Range Bolstered By New iShares ETFs

The choice for ETF investors just got a little broader. Earlier this month BlackRock launched 4 new ASX listed Exchange Traded Funds all covering the Australian stock market. The table below list each of the 4 new funds.

ASX Code	Fund Name	Purpose of Fund
ILC	iShares S&P/ASX 20	Tracks the performance of the S&P/ASX 20 Index
IOZ	iShares MSCI Australia 200	Tracks the performance of the MSCI Australia 200 Index
ISO	iShares S&P/ASX Small Ordinaries	Tracks the performance of the S&P/ASX Small Ordinaries Index
IHD	iShares S&P/ASX High Dividend	Provides exposure to 50 of Australia's larger high dividend paying stocks

New iShares Exchange Traded Funds

Best Shares To Buy In 2010

Buying shares over the past couple of years has certainly been a hair-raising experience for most of us. It's been an extraordinary roller coaster ride. The All Ordinaries index started 2008 at 4,882 before reaching a low of 3201 in November of that year. Then in March of 2009 we got lower still - down to 3,090 in March before finishing the year at 4,882. Overall in 2009 the index gained more than 33% or around 58% since the low point in March but that was a shocker of a year in 2008.

2008/2009 Share Price Graph

So what can we expect from the Australian stock market in 2010? Well quite frankly, your guess is as good as mine. But I think it's worth putting what we learned in 2008 and 2009 into practice in 2010.

Australian Stock Market Floats For 2008

New company floats on the Australian Stock Exchange copped an absolute pasting during 2008. I can't be any more plain than that. Very few companies whose shares listed on the ASX during 2008 ended up which a share price exceeding the issue price.

Float activity was down on previous years as well, as measured by either the number of new issues or by the aggregate amount of capital raised. But this was to be expected. With the All Ordinaries down 43% for the year and panic stricken investors heading for the exits at the first sign of trouble only the very brave or very needy chanced their arm with an IPO. I suspect most executives who had intentions to float in 2008 would have delayed their plans until a calmer mood prevailed over world stock markets.

Measured by the number of new company floats, 2008 was a poor year, with only 72 new listings. This is the lowest since 2002 and is a far cry from the peak in 2007 of 242 new company floats. Also, only 2 billion dollars was raised last year - once again well behind the 9.7 billion dollar figure for 2007.

Of the 72 floats, only 2 finished with their heads above water.

• Phosphate Australia (ASX:POZ) finished the year at 44 cents after listing in July at an issue price of 20 cents - an impressive 120% gain.
• Heartware (ASX:HIN) finished up 20% at 60 cents after an Initial Public Offering at 50 cents in November.

An honorable mention should go to Tiaro Coal who have managed to break even by finishing the year at 20 cents - the same as the issue price back in March when the Australian Stock Exchange was first graced with it's presence.

After that it gets ugly. More than two thirds of new listings finished the year at less than 40% of their original issue price. The companies floated were mostly small with lots of mining and exploration plays amongst them. But there is one exception...

BrisConnections floated at the end of July at an issue price of $1.00. Since then it has plummeted like a stone to 0.1 cents - not $0.10, but $0.001 or a tenth of a cent. The company plans to construct a toll road in Brisbane connecting the Airport to some other stuff (I don't know the geography of Brisbane very well). I believe there are lots of tunnels involved.

BrisConnections has so far raised $400M out of its total $1.2B - and this is where it gets interesting. You see the shares (stapled securities to be more accurate) were issued on a partly paid basis with 2 further installments due (each of $1.00) over the next couple of years. This means the the purchase of each one of these securities at the knock down, bargain basement price of $0.001 buys you the obligation to stump up another $2.00 down the track.

I can almost hear your brain ticking over as you ponder that one. Let's say you have a lazy $500 to 'invest'. At the going rate of a tenth of one cent per security, your 500 dollars (plus brokerage of course) will buy you 500,000 of these little beauties. "Not bad!", you say. Then you do the maths and work out that over the next 2 years you'll need to fork out an additional 1 million dollars - that's $1,000,000 - to make the installment payments.

And just to make sure you are in no doubt as to your legal requirement in this matter, the kind folks at BrisConnections sent out a letter to shareholders early last month reminding shareholders of their obligation to make the installment payments. In the letter, they stated that "BrisConnections will take a vigorous approach to collecting any such outstanding payments."

Finally, I should point out that, despite the tone of this article, I don't mean to imply that all of the floats to hit the Australian stock market in 2008 were of poor quality, although I suspect some of them may well have been. Value investors would know that a fall in price does not necessarily mean the company is no good. On the contrary, value investors may well want to pick through the carnage of last year's IPOs to see if there are any hidden gems which may be worthly of closer inspection.

Australian Stock Market News - Week Ending 17/10/2008

Well it was another turbulent week on the Australian stock market. The all ordinaries index was up and down like a yo-yo. The all ordinaries opened the week at 3,966, reached a high of 4,404, a low of 3,937 and finally closed at 3,945. This is a far cry from the high of over 6,800 reached by the all ords mid last year. The chart below shows the movement in the all ordinaries during this week.

Australian Sharemarket Chart

I can't believe how volatile the Australian sharemarket has been over the past month or so. Share prices collapse one day, rally the next only only to slump again. There are probably some very important lessons to be learned about human behavior and market psychology from all of this. As a long term value investor, I can't believe that the underlying value of some of these companies can vary so much from day to day.

You can understand why some people see shares as such a risky investment. I wouldn't like to be trying to learn about the stock market right now as I think the fear pervading financial markets would make it very hard on a beginner just starting out.

Surely this will be a great time for value investors. I noticed that renowned value investor Maple-Brown Abbott has been busy in the last week picking up shares in Paperlinx, Boart Longyear and Emeco. Another fund manager I keep my eye on is Lazard. They were buying shares in Specialty Fashion Group this week.

While I'm on the topic of fund managers, I noticed that Platinum Capital has announced a 1 for 4 rights issue. Kerr Neilson is a pretty canny investor so I was initially surprised to see him raising capital with the share price so low. But I guess that he must see lots of opportunities right now and will be able to put the new funds to good use.

The last thing I want to mention today is that it is now October. The significance of this escaped me until today. For those that don't remember, the crash in 1987 occurred in October and since that time October has been a regular period of weakness in the Australian stock market. Even more to learn about market psychology...

ABC Learning To Face Class Action From IMF?

I've written about ABC Learning (ASX Code: ABS) a number of times recently, and it seems there may be more bad news on the way. I read in the Business Section of The Age yesterday that IMF will be funding a class action against the Australian Stock Market's largest childcare provider.

According to the article, the lawsuit hinges upon an alleged lack of disclosure by ABC. In February of this year $73 million of develper fees was disclosed for the first time. This $73 million along with a couple of other one-off items was enough to allow ABC to report a profit, but without these one-off items, there would have been a rather nasty loss. Apparently any litigation would relate to the material nature of these developer fees.

In an announcement to the Australian Stock Exchange a couple of days ago, ABC Learning were at pains to point out that it "has not received any claim or any notice of claim" with regard to the action from IMF. It said that IMF's announcement is simply stating it's intention to fund any possible claim - depending on the level of participation.

IMF is a provider of funding and support in litigation similar to the one mentioned above. It seems to have had some success recently including a settlement with Aristocrat (ALL) for which I'm sure IMF will earn a hefty fee.

ABC Learning Shares closed at 83 cents today, down half of one cent.

Australian Stock Market Weakness A Buying Opportunity?

The Australian Stock Market is approaching a three month low this week. After a brief rally it's all doom and gloom once more - just in time for the end of the financial year. So does this mean it's a good time to buy Australian shares?

I guess it depends on your time frame and your outlook. If you're a long-term investor or a fan of value investing, then these sorts of conditions are right up your alley. But if you're a speculator looking to make a quick buck, it might be a little risky.

I suspect that one of the reasons for the recent share price weakness, apart from the obvious ongoing turmoil in the debt markets, is the fast approaching end of the financial (tax) year. At this time of year some investor like to look back on the profits they've taken during the year then look at their portfolio to find any losses they might be sitting on. By selling out of any losing positions, they can crystallize their loss for tax purposes and offset this loss against other gains.

If you're thinking of engaging in the above strategy you'll need to be careful. There are situations where the Australian Taxation Office take a dim view of this sort of activity. I think the problem arises when you sell the buy back in straight away and the only purpose of the transaction is to generate a tax loss. Make sure you talk to a tax professional if you're considering doing this.

Apparently one of the other reasons for volatility at this time of year is because the fund managers are re-balancing or 'window dressing' their portfolios. I dare say the the Superannuation Funds are very busy right now trying to salvage some sort respectable result.

Another way of looking at the current state of the markets is as a second chance. For those of us who hadn't bought everything we wanted to before the recent recovery, it means we get another bite at the cherry. I certainly thought that prices were recovering and that I'd missed the low point. Now we all get a second chance to top up our portfolios with good quality Australian stocks.