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 Worst Annual Return Ever?

The Australian stock market gave investors a wild ride during 2008. It was not a year for the fainthearted. An investment in Australian shares as measured by the All Ordinaries index is down by almost 43% - that really hurts!

Australian Stock Market Chart - 2008

The All Ords started out the year at 6,462.8 and finished at 3,659.3. Along the way it touched a high of 6,462.8 on the first trading day of the year before plunging to a low of 3,201.5 on 21 November. As far as I can tell, this is the worst performance recorded since 1900.

Australian Shares Not All Bad News...

Unless you've had to sell shares, the good news is that this is only a paper loss. Granted, it might be some time before the sharemarket regains the levels it was at in 2007, but if you have a long term view and focus on the fundamentals of the businesses you're invested in, there should be light at the end of the tunnel.

Even better, if you have cash available, there are some screaming bargains on offer at the moment. I think that prudent and discerning investors will do very well in Australian shares over the medium term. But I suspect there could be more volatility on the way.

The All Ordinaries has recovered slightly from it's low point in November but as we've seen in recent months fear and panic can wipe out any tentative gains in the blink of an eye. Baring any more catastrophes (by that I mean large corporate collapses or bailouts) the next interesting time will be when listed companies start reporting their financial results to the ASX in a month or two.

Until now, the market has been anticipating the impact of the global slowdown in economic activity. Once we start seeing some actual financial results, we'll have a much better idea of how the various sectors, and the individual companies within those sectors are faring.

What I Learned About Investing In 2008 : Lesson 1 - Patience

The Australian Stock Market has had a terrible year based on almost any measure you care to name. The All Ordinaries and major S&P ASX indexes are all down significantly from the beginning of the year and some market pundits are saying we still haven't reached bottom - but I guess we wont know when the bottom is until it has passed. World stock market indexes have fared little better and in some cases even worse.

It's approaching the time of year when I like to reflect upon my investment activities over the past year and consider what the coming year may hold. It's a great opportunity to take a couple of steps back and look at the year's events and my participation in and reaction to them from a safe distance. Time can sometimes give us a better perspective from which to consider our actions.

With that in mind, I thought I'd share some thoughts on what investment lessons I've learned from the tumultuous year that has been 2008. Before I started writing this, it was going to be a single post. But as I started writing, the words just stated to flow to I think I'll spread this over a number of posts.

Value Investing Takes Patience.

I like to consider myself a value investor or even a contrarian investor. However, in recent years (with the exception perhaps of 2008) this has taken more and more patience. Value investing opportunities become very scarce. I was accumulating cash, my trigger finger was becoming itchy but there just weren't any decent targets to take aim at.

Then the sub-prime mortgage came along and suddenly some of the shares on my watchlist were getting cheaper. To put things in perspective, the All Ordinaries had been as high as six and a half thousand in 2007 and fell to around five thousand in the first quarter of 2008 and looked like staging a recovery from that point.

I didn't want to miss the buying opportunity so I started buying. While I didn't spend all of my cash, in retrospect a think I spent too much, too early, leaving less in reserve for the opportunities which would emerge later in the year.

I think I fell for the old "this time it's different" line. You know the one where everyone tells you that there's been some sort of fundamental shift in how sharemarkets work. Think back to the dot-com boom (and bust). It 's happened many times over - the stock market crash of 1929, tulip mania - the list goes on.

Stock market commentators were saying that higher prices were justified. They said there was a great weight of superannuation money driving asset prices and that this was an ongoing and long term trend which would support shares prices. They said that industrialization of China had lead to a resources "super cycle" - everything was different now!

Even though I considered myself a skeptic, I was worried that the market would recover from this hiccup and carry on it's merry way, leaving me behind. I felt I needed to take advantage of the "relative" value in share prices, even though I didn't consider it absolute value.

Investing is a long term game. Even though the last bull market was a long one, history told us that it had to end. It also told us that the longer the bull market and higher it goes, the longer and deeper the bear market that follows it. Benjamin Graham, author of The Intelligent Investor and Security Analysis recommended buying blue chip stocks at no more than two thirds of their most recent highs. This was to protect investors from the market's inevitable manic depressive behavior. He believed there would always be another opportunity - that the market would always over-correct on both the upside and the downside.

Once again, Ben has been proven right. The Australian Stock Market has shown how quickly things can turn ugly. I should have had more patience in waiting for that value to emerge.

Australian Stock Market Hits 2 Year Low

Shares on the Australian Stock Market hit their lowest level in 2 years today. The All Ordinaries index closed just under 4,800 after falling about 1.5%. And this was after a fall of over 1.6% yesterday. You need to go back to early 2006 to see the All Ords at a level below this. The following graph shows the performance of the Australian Stock Market over the past 2 years.

Performance of Australian Shares

The sell-off was triggered by news of the collapse of Lehman Brothers over the weekend and the sale of Merril Lynch. Lehman Brothers, a large United States investment bank, filed for bankruptcy protection under the US Bankruptcy Code - from what I've read, it's the largest filing in US financial history.

As you would expect, Aussie financial stocks were down significantly on news out of the US. All of the major Australian banks withe the exception of Westpac were down today. Investment bank Macquarie Group (MQG) was down $4.55 yesterday and another $2.66 today to finish the days trading at $36.80. And poor old Babcock & Brown (BNB) was down a lazy 33.5% today to a closing share price of $1.05 - a long way off its 52 week high of $31.08.

While the recent financial turmoil has claimed it's share of victims on the Australian stock market, I wonder whether the worst is over yet. Investors should be taking a good hard look at their portfolios, particularly shares in companies with excessive debt. And if you're taking advantage the bargains on offer at the moment, discretion as advised.

Australian Stock Market Worst Return In 26 Years

The Australian Stock Market experienced its worst return for 26 years for the 12 months ending June 30. Australia's All Ordinaries Index lost more than 15% for the 2007/2008 year.

The chart below shows the movement of the All Ordinaries Index during the year.

Australian Stock Market Performance for 2007/2008

As you can see, the market tried valiantly to recover from the low point in March and was looking good until mid May when the wheels fell off again. But what does all of this mean for the average Australian investor?

Less Than Super Returns...

Perhaps the broadest impact will be to everybody's superannuation balances. As we all start to receive our superannuation statements in the mail for the past year, there will be a fair amount of disappointment. We aren't used to getting negative returns. Depending on the investment option chosen, you may experience anything from low single digit negative returns right up to double digit percentage losses.

Value Investor's Paradice?

For those investors among us with a value bias, the Australian stockmarket hasn't looked this attractive in years. After a prolonged period of strong sharemarket price growth, the past 6 months has thrown up plenty of bargains. And not just the minnows - blue chip stocks as well. The financial sector with banks in particular are presenting some good value but price weakness is not limited to this sector.

The pain has continued since the close of the financial year as well. The following chart shows the performance of the All Ordinaries over the past week.

All Ordinaries This Week

As you can see, after the close of the financial year on Monday, the index continued to fall throughout the week with the exception of today.