Forum Archive Index - August 2002

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Phaedrus,
 

>It is surprising just how similar the charts of many stocks can be.
>The stocks plotted below all went from September lows to similarly
>peak over a relatively short time span. All are now in clear
>downtrends, and still falling.
> 
>What can we deduce from this? At the very least, the following
>possibilities are suggested :-
> 
>(1) The perceived safety of diversification gives no protection from
>major market movements, if the majority of stocks tend to follow the
>same major trends. 
>
>


Certainly buying large numbers of shares in itself is not a guarantee 
that they won't move up and down in tandem.   All is not lost though. 
 If you have say half your NZ shares that benefit from a rise in the 
$NZ (importers) and half of those that benefit from the fall in the 
$NZ (exporters) that should be one way to smooth your returns.


>
>(2) If diversification does little to cushion major market falls, it 
>is therefore unwise to be fully invested at all times. 
>
>


Agreed.  Very difficult to pick up real bargains if you are fully 
invested all the time, unless you believe you can pick the tops and 
the bottoms with foresight.  I certainly can't!



>
>
>(3) When you buy and sell is at least as important as the
> choice of stock, maybe more so. 
>


Self evident from your charts, but perhaps the time period you have 
chosen to examine (less than a year in a known bear market) has some 
bearing on your conclusion?


>
>
>(4) The use of simple trendlines can be very effective in 
>timing exits from established trends. 
>
>


You mean a trendline is useful in tracking a trend.  Careful not to 
blind us with science Phaedrus ;-)


>
>
>(5) The price movements of all of these stocks have been very 
> similar, with all of them responding mainly to the perceived 
> macroeconomic situation, perhaps as represented by the Dow. 
>
>


If you ignore the chart ( I know I know sacrilege ), and you focus on 
the starting price and the finishing price there is quite a variation 
in the investment performance.  From +80% on Eldercare to -5% for AXA


>
>
>(6) The charts are all
> broadly similar, in spite of the stocks having widely varying
> underlying fundamentals.
> 
>             


AIR, BRY ,CAH, FFS, WLD?   You haven't been a little selective with 
your examples?

SNOOPY



 
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