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* Global Financial Crisis
Beware the Share Market
Bears!(they are never far away)
Brainy's 10 Key Lessons from the GFC*for both investors and traders
November 2009
Revision 6
“The share market can seem mystical and almost like black magic; but with the right support and assistance, it just seems like magic.”
Robert Brain
2
Introduction & HousekeepingBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
About this presentation1. Share market, and more!
2. Bear markets, and bull markets
3. Topics:
(a) Share markets — the last 20 years
(b) Bull and bear markets
(c) Ten Key Lessons from the GFC
(d) Share price charts can help!
(e) Web sites and software
(f) Technical Analysis, Trading, “What next?”
4. Interactive — questions and discussions(as much as the time permits)
3
Introduction & HousekeepingBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
About this presentation (cont.)This presentation has been updated and refined for each of three deliveries in November 2009:
1. 5 Nov — Manningham U3A (University of the Third Age);
2. 10 Nov — Melbourne PC User Group — WASINT Special Interest Group;
3. 17 Nov — EIS group (Economic Indicator Services).
This version supplants all previous versions.
4
Introduction & HousekeepingBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The presenter1. Engineering degree
2. 30+ years – professional experience
3. Trainer / presenter / conference facilitator
4. Share Market – 8+ years
5. Technical Analyst (ATAA Director)
6. Provide tuition and support to traders and investors (Brainy's Share Market Toolbox web site)
7. Does not hold AFS license! (Can't give advice)
5
Introduction & HousekeepingBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
About the audience?1. Background — accountants? engineers?
2. Investments — traders? investors?
3. Share market knowledge? — yes? no?
4. Charting? and Technical Analysis?
5. Internet experience?
6. Specialties?
6
Introduction & HousekeepingBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Important Notice1. This presentation does not include any advice.
2. For proper advice, your personal financial situation needs to be considered.
3. This presentation is pure education, only for your general awareness.
4. There are no recommendations to take any action, or to invest any money in any way.
5. Always consult a properly licensed advisor before making investment decisions.
7
Introduction & HousekeepingBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Important Notice
advice
8
Introduction & HousekeepingBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
AGENDA1. Current Crisis — Background and Recent History
2. Some general observations
3. The 10 Key Lessons — some details
4. Online Charts and Software
5. Charts and Technical Analysis
6. Before you trade!
7. What to do next?
8. Recommended Reading
9. Summary.
BACKGROUNDBeware!The bears
9© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The current crisis(December 2007-now)
BACKGROUND
BACKGROUNDBeware!The bears
10© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Global Financial Crisis (GFC)
● US sub-prime crisis● CDOs (Collateralised Debt Obligations)● “Toxic” debt● Bear markets in many countries● Recessions in some countries.
BACKGROUNDBeware!The bears
11© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
How bad is it in Australia?
● Property values fell.
● Superannuation investments fell in value.
● Unemployment increased.
● Retrenchments.
● Some investments lost as much as 90% or more of their value.
● Some investments were liquidated completely.
● Inappropriate lending - margin loans, etc.
● Issues with over-borrowing that has been encouraged by some lenders.
● Some questionable advice from some experts.
A lot of people have been suffering, and there is potentially more to come :-(
BACKGROUNDBeware!The bears
12© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
But! ....
A lot of people saw this coming!!
BUT:-
How did they know?
BACKGROUNDBeware!The bears
13© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
First...
Some RECENT HISTORY
BACKGROUNDBeware!The bears
14© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Recent history — 1986 to 2009
BACKGROUNDBeware!The bears
15© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Recent history — 1987 to 2009
Bear Markets and Corrections — 1987 to 2009
Months YearsSept 1987 A Bear market -44 106 8.8Aug 1989 C Bear market -28 46 3.8Oct 1991 D2 Correction -15 18 1.5Jan 1994 F Bear market -21 32 2.7Sept 1997 J Correction -11 14 1.2June 2001 O Correction -19 35 2.9Oct 2007 * S Bear market -51 25 2.1* — Latest bear market has not yet finished.
Start Date
FromPoint
Bear Marketor
Correction
Amount(%)
Time to recoverto past high
Note: The letters in the “From Point” column refer to points on next slide.
BACKGROUNDBeware!The bears
16© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
1987 to 1996
BACKGROUNDBeware!The bears
17© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Bear Market — Sept 1987 — July 1996
BACKGROUNDBeware!The bears
18© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Bear Market — Aug 1989 — June 1993
Note: Correction D2-D2' inside Bear Market C (details next slide)
BACKGROUNDBeware!The bears
19© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Correction — Oct 1991 — April 1993
BACKGROUNDBeware!The bears
20© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Bear Market — Jan 1994 — Sept 1996
BACKGROUNDBeware!The bears
21© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Correction — Sept 1997 — Nov 1998
BACKGROUNDBeware!The bears
22© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Correction — June 2001 — May 2004
BACKGROUNDBeware!The bears
23© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
BEAR MARKET — Oct 2007 — now+
BACKGROUNDBeware!The bears
24© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
BEAR MARKET — These charts
The charts on the previous slides are already posted on the web.
Visit:
www.robertbrain.com/bearmarkets
25
Introduction & HousekeepingBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
AGENDA1. Current Crisis — Background and Recent History
2. Some general observations
3. The 10 Key Lessons — some details
4. Online Charts and Software
5. Charts and Technical Analysis
6. Before you trade!
7. What to do next?
8. Recommended Reading
9. Summary.
BACKGROUNDBeware!The bears
26© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Second...
SOME OBSERVATIONS
BACKGROUNDBeware!The bears
27© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Observations — The trend is your friend
● HH = Higher Highs● HL = Higher Lows● A trend is in place
until it is confirmed to no longer be in place
● Applies toUp trend, andDown trend.
BACKGROUNDBeware!The bears
28© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Observations — The Finance Industry
Some professionals:-● rely on commissions● are “serial innovators”● don't really “care” about their clients● will trot out the same old spiel to keep clients
invested in their products — eg:– It's time in the market, not timing
– Over the long term, the market does rise.
BACKGROUNDBeware!The bears
29© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Observations — The market rises (over time)
The Dow Jones since 1900
BACKGROUNDBeware!The bears
30© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Observations — The market rises (over time)
Click to view this interactive chart on the web:www.vanguard.com.au/personal_investors/knowledge-centre/indexing/interactive-index-chart.cfm
This web-based interactive chart is useful to view performance of different asset classes, and to readily zoomthe chart in/out.See active web link below.
31
Introduction & HousekeepingBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
AGENDA1. Current Crisis — Background and Recent History
2. Some general observations
3. The 10 Key Lessons — some details
4. Online Charts and Software
5. Charts and Technical Analysis
6. Before you trade!
7. What to do next?
8. Recommended Reading
9. Summary.
32
The TEN Lessons!Beware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The 10KEY LESSONS
for investorsand traders...
33
The TEN Lessons!Beware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The 10 Key Lessons1. Cycles — Markets, stocks, property all run in cycles
2. Corrections — Stock market corrections? — How long?
3. Advisors — Financial advisors, brokers, bankers
4. Timing the market — Can we “time the market”?
5. Capital protection? — Is it real? Blue chips safe?
6. Leverage — Leveraged instruments (eg. CFDs)
7. Margin lending — Can it be safe?
8. Fall 90%? — Can investments really fall 90%?
9. Buy-and-Hold? — Is it time to re-think this strategy?
10. Chart reading? — Can be useful! Here's how...
Back to Agenda
34
Beware!The bears #1 — Markets, property, etc. — Cycles
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Lesson #1
Markets, property, pricesRun in Cycles
35
Beware!The bears #1 — Markets, property, etc. — Cycles
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The 10-year Investment Clock
36
Beware!The bears #1 — Markets, property, etc. — Cycles
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The generic Investment Clock
Source: Citigroup and AFR
37
Beware!The bears #1 — Markets, property, etc. — Cycles
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Property values — rise and fall
● Cycles of 17 to 21 years (about 18 on average)
● Phil Anderson (Economic Indicator Services) www.businesscycles.biz
● The Savings and Loan debacle (late 1980s)● The recent CDO debacle
(Collateralised Debt Obligations)● Clever manipulation of the law and regs by
“innovative” (unscrupulous?) people.
38
Beware!The bears #1 — Markets, property, etc. — Cycles
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The 18-year Property Cycle
Source: Phillip J. Anderson, “The Secret Life of Real Estate”, p. vii.
39
Beware!The bears #1 — Markets, property, etc. — Cycles
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Profile of the 18-year Real Estate cycle
Source: Phillip J. Anderson, “The Secret Life of Real Estate”, p. 340. Original source: Fred Harrison, “Boom and Bust”, p. 87.
40
Beware!The bears #1 — Markets, property, etc. — Cycles
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The 24-hour Real Estate Clock
Source: Phillip J. Anderson, “The Secret Life of Real Estate”, p. 360.
41
Beware!The bears #1 — Markets, property, etc. — Cycles
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Several other cycles
● 30-year commodity price cycle● Seasonal cycles● 80-year New Economy cycle● Kondratieff cycle (58-60 years)● US Presidential cycle — 4-years (details over)● Decennial cycle (details over)● 40-year generational spending cycles
More details, refer:“The Great Depression Ahead”, Harry S. Dent, www.hsdent.com
42
Beware!The bears #1 — Markets, property, etc. — Cycles
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
US Presidential cycle — 4-years
U.S. markets have a tendency to make a low in the second year of a President's term and a high in the first year.
Source: www.ndr.com Ack: Harry S. Dent Jr, “The Great Depression Ahead”, p. 94.
(returns on the Dow)
43
Beware!The bears #1 — Markets, property, etc. — Cycles
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Decennial cycles
Markets tend to under-perform in the first years of each decade (ie. year ends in 0, 1, 2, etc.), and out-perform in the last few years of the decade.
Source: www.ndr.com Ack: Harry S. Dent Jr, “The Great Depression Ahead”, p. 93.
(returns on the Dow)
44
Beware!The bears #1 — Markets, property, etc. — Cycles
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Decennial cycles
For example: Under-perform, crash or correction:1920-22, 1930-32, 1960-62, 1970, 1980-82, 1990, 2000-2.Out-perform or bull: 1914-19, 1925-29, 1985-89, 1995-2000, 2005-9.
Source: www.ndr.com Ack: Harry S. Dent Jr, “The Great Depression Ahead”, p. 93.
(returns on the Dow)
45
Beware!The bears #1 — Markets, property, etc. — Cycles
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Household spending cycle ($US)
Ack: Harry S. Dent Jr, “The Great Depression Ahead”, p. 45.
(returns on the Dow)
The average household* peaks in spending between ages 46-50.
* Households in US and other developed countries.
Source: annual surveys by US Bureau of Labor.
46
Beware!The bears #1 — Markets, property, etc. — Cycles
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Markets, etc. — run in cycles
The lesson:
It can be useful tobe aware of cycles,
and of over-priced property.
47
The TEN Lessons!Beware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The 10 Key Lessons1. Cycles — Markets, stocks, property all run in cycles
2. Corrections — Stock market corrections? — How long?
3. Advisors — Financial advisors, brokers, bankers
4. Timing the market — Can we “time the market”?
5. Capital protection? — Is it real? Blue chips safe?
6. Leverage — Leveraged instruments (eg. CFDs)
7. Margin lending — Can it be safe?
8. Fall 90%? — Can investments really fall 90%?
9. Buy-and-Hold? — Is it time to re-think this strategy?
10. Chart reading? — Can be useful! Here's how...
Back to Agenda
48
Beware!The bears #2 — Stock Market Corrections
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Lesson #2
Market “Corrections”.They happen.
How often? How long?
49
Beware!The bears #2 — Stock Market Corrections
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Bull and Bear Market cycles
Possible sources: Barry Ritholtz; and www.thestreet.com
50
Beware!The bears #2 — Stock Market Corrections
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Bull and Bear Market cycles — v2
Possible sources: Barry Ritholtz; and www.thestreet.com
51
Beware!The bears #2 — Stock Market Corrections
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Secular Market cycles
Source: www.crestmontresearch.com
Definition: Secular — A secular market trend is a long-term trend that lasts 5 to 25 years and consists of a series of sequential primary trends (Wikipedia).
52
Beware!The bears #2 — Stock Market Corrections
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Stan Weinstein's Stage Analysis
“Any stock (or index) has to be in one of four market stages.”
And they don't have to follow in sequence.
Source: “Secrets for Profiting in Bull and Bear Markets”, Stan Weinstein (1988). McGraw-Hill.
53
Beware!The bears #2 — Stock Market Corrections
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com Source — www.chartoftheday.com
54
Beware!The bears #2 — Stock Market Corrections
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Australian Bear Market Durations
Start Date End Date
Jan 1970 Nov 1971 98 -39.0Jan 1973 Sep 1974 89 -59.2Nov 1980 Jul 1982 85 -40.6Aug 1989 Jan 1991 72 -28.0Jun 2001 Mar 2003 89 -19.0
Duration (weeks)
Fall%
Source — UBS
55
Beware!The bears #2 — Stock Market Corrections
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Stock market corrections
The lesson:
Stock market “corrections” do happen,and the bears can demolish investments.
Be prepared to protect your investments.
56
The TEN Lessons!Beware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The 10 Key Lessons1. Cycles — Markets, stocks, property all run in cycles
2. Corrections — Stock market corrections? — How long?
3. Advisors — Financial advisors, brokers, bankers
4. Timing the market — Can we “time the market”?
5. Capital protection? — Is it real? Blue chips safe?
6. Leverage — Leveraged instruments (eg. CFDs)
7. Margin lending — Can it be safe?
8. Fall 90%? — Can investments really fall 90%?
9. Buy-and-Hold? — Is it time to re-think this strategy?
10. Chart reading? — Can be useful! Here's how...
Back to Agenda
57
Beware!The bears #3 — Financial advisors
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Lesson #3
Financial advisors,brokers & bankers
58
Beware!The bears #3 — Financial advisors
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Might not be right all the time
● 100% accuracy?● “Your investments are safe for the long haul...”● “...don't worry, they will recover (eventually)”● What about the “experts” and “advisors”
(and the innovative bankers) who created and contributed to the melt-down in 2008-09?
● Question their remuneration methods.
59
Beware!The bears #3 — Financial advisors
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
“Advisors”
The lesson:
Don't believe absolutely everything that you hear.
Healthy scepticism is healthy.
60
The TEN Lessons!Beware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The 10 Key Lessons1. Cycles — Markets, stocks, property all run in cycles
2. Corrections — Stock market corrections? — How long?
3. Advisors — Financial advisors, brokers, bankers
4. Timing the market — Can we “time the market”?
5. Capital protection? — Is it real? Blue chips safe?
6. Leverage — Leveraged instruments (eg. CFDs)
7. Margin lending — Can it be safe?
8. Fall 90%? — Can investments really fall 90%?
9. Buy-and-Hold? — Is it time to re-think this strategy?
10. Chart reading? — Can be useful! Here's how...
Back to Agenda
#4 — Timing the marketBeware!The bears
61© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Lesson #4
Timing the market?Or time in the market?
#4 — Timing the marketBeware!The bears
62© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
“Timing”? or “Time in”?
What do you think?● Is it possible to “time” the market?
Thousands of Technical Analysts (chartists)think so, including:● Frank Watkins
“Exploding the Myths”, Vocational Education & Training Publications
● Colin Nicholson...
#4 — Timing the marketBeware!The bears
63© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Timing the market
The lesson:
Many people do successfully“time the market”.
It can be done.
64
The TEN Lessons!Beware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The 10 Key Lessons1. Cycles — Markets, stocks, property all run in cycles
2. Corrections — Stock market corrections? — How long?
3. Advisors — Financial advisors, brokers, bankers
4. Timing the market — Can we “time the market”?
5. Capital protection? — Is it real? Blue chips safe?
6. Leverage — Leveraged instruments (eg. CFDs)
7. Margin lending — Can it be safe?
8. Fall 90%? — Can investments really fall 90%?
9. Buy-and-Hold? — Is it time to re-think this strategy?
10. Chart reading? — Can be useful! Here's how...
Back to Agenda
65
Beware!The bears #5 — Investments — Safe?
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Lesson #5
InvestmentsCapital protection?Blue Chip = safe?
66
Beware!The bears #5 — Investments — Safe?
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Capital protectionAre your investments safe?● Your superannuation● Capital-protected products and schemes
– ALPS, etc. (and knockout events)
● Beware the “knockout” events.
67
Beware!The bears #5 — Investments — Safe?
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Investments — safe?
The lesson:
Sometimes things are not as they seem. They might come at a cost.
It is important to read the fine print.
68
The TEN Lessons!Beware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The 10 Key Lessons1. Cycles — Markets, stocks, property all run in cycles
2. Corrections — Stock market corrections? — How long?
3. Advisors — Financial advisors, brokers, bankers
4. Timing the market — Can we “time the market”?
5. Capital protection? — Is it real? Blue chips safe?
6. Leverage — Leveraged instruments (eg. CFDs)
7. Margin lending — Can it be safe?
8. Fall 90%? — Can investments really fall 90%?
9. Buy-and-Hold? — Is it time to re-think this strategy?
10. Chart reading? — Can be useful! Here's how...
Back to Agenda
Beware!The bears #6 — Leverage
69
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Lesson #6
Leveraged instruments.CFDs, etc.
Beware!The bears #6 — Leverage
70
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Derivatives, CFDs● Can be safe; can be very dangerous!● It is possible to lose a lot more than
the initial deposit.● Under the right circumstances, and
in the right hands, can be powerful.
Beware!The bears #6 — Leverage
71
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Derivatives, CFDs
The lesson:
If you don't understand the rules of the game,
then don't play the game.
72
The TEN Lessons!Beware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The 10 Key Lessons1. Cycles — Markets, stocks, property all run in cycles
2. Corrections — Stock market corrections? — How long?
3. Advisors — Financial advisors, brokers, bankers
4. Timing the market — Can we “time the market”?
5. Capital protection? — Is it real? Blue chips safe?
6. Leverage — Leveraged instruments (eg. CFDs)
7. Margin lending — Can it be safe?
8. Fall 90%? — Can investments really fall 90%?
9. Buy-and-Hold? — Is it time to re-think this strategy?
10. Chart reading? — Can be useful! Here's how...
Back to Agenda
73
Beware!The bears #7 — Margin Lending
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Lesson #7
Margin LendingCan it be safe?
74
Beware!The bears #7 — Margin Lending
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Can it be safe?● Recent history (2008)?● Directors' borrowings for own shares● LVR — Loan to Valuation Ratio● ABS (ABC Learning), AFG (Allco Finance),
plus others...
75
Beware!The bears #7 — Margin Lending
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The lesson:
Margin lending...might work well in a bull market;
but beware...
76
The TEN Lessons!Beware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The 10 Key Lessons1. Cycles — Markets, stocks, property all run in cycles
2. Corrections — Stock market corrections? — How long?
3. Advisors — Financial advisors, brokers, bankers
4. Timing the market — Can we “time the market”?
5. Capital protection? — Is it real? Blue chips safe?
6. Leverage — Leveraged instruments (eg. CFDs)
7. Margin lending — Can it be safe?
8. Fall 90%? — Can investments really fall 90%?
9. Buy-and-Hold? — Is it time to re-think this strategy?
10. Chart reading? — Can be useful! Here's how...
Back to Agenda
77
#8 — Investments fall 90%?Beware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Lesson #8
Can investments really fall as much as 90%?
78
#8 — Investments fall 90%?Beware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Can they fall 90%?● The short answer is yes!● Take a look at the following...
79
#8 — Investments fall 90%?Beware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Going...Going...GoneThe following companies had significant share price falls from the bull market peak of October 2007:-● TIM (Timbercorp) -97%; gone May 2009● GTP (Great Southern P) -96%; gone May 2009● BNB (Babcock & Brown) -99%; gone June 2009● ABS (A.B.C.Learning) -92%; gone Aug 2009● AFG (Allco Finance) -99%; gone Aug 2009● CDR (Commander Comms) -95%; gone Aug 2009● MFS (renamed Octaviar OCV) -74%; gone Aug 2009● NLX (Nylex) -97%; Feb 09 Trading halt and administration
80
#8 — Investments fall 90%?Beware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Fell > 60% **● AAX (Ausenco) -89%● ABP (Abacus Prop) -91%● ALZ (Australand) -91%● * ANZ -62%● APN News Media -83%● AWC (Alumina) -84%● AXA -65%● BBG (Billabong) -62%● BJT (Babcock and Brown
Japan) -90%● BKN (Bradken) -93%
● BSL (Blue Scope) -78%● CEY (Centennial Coal) -71%● CGF (Challenger Fin) -84%● CTX (Caltex) -72%● FLT (Flight Centre) -88%● FXJ (Fairfax Media) -82%● HIL (Hills Indust.) -79%● HVN (Harvey Norm) -72%● * LEI (Leighton) -71%● ABC (Adel Brighton) -62%● AGO (Atlas Iron) -88%
** — Until May 2008* — Blue Chip stocks
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#8 — Investments fall 90%?Beware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
● ASX -58%● AWE (Australian Worldwide
Exploration) -57%● * BHP -55%● CAB (Cabcharge) -54%● * CBA -58%● CPA (Commonwealth
Property) -56%
Fell between 50% and 60% **● CRG (Crane Group) -58%● DJS (David Jones) -57%● JBH (JB-HiFi) -52%● NAB -59%● PRY (Primary Health) -58%● * QBE -50%
** — Until May 2008* — Blue Chip stocks
82
#8 — Investments fall 90%?Beware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Fell < 50% **● AMC (Amcor) -48%● ANN (Ansell) -42%● COH (Cochlear) -40%● HSP (Healthscope) -30%● * TLS (Telstra) -34%● * WOW (Woolworths) -31%
** — Until May 2008* — Blue Chip stocks
BTW:- What does “blue chip” mean?
83
#8 — Investments fall 90%?Beware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
"Blue Chip" definition:
Shares, usually highly valued, in a major company
known for its ability to make profits in good times or in bad, and with reduced risk of default.
(Source: www.asx.com.au)
Can Blue Chips fall this much as well?
Blue chip stocks?
84
#8 — Investments fall 90%?Beware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The lesson:
Take care with your investments (even Blue Chip stocks),
and sell the bad performers.
85
The TEN Lessons!Beware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The 10 Key Lessons1. Cycles — Markets, stocks, property all run in cycles
2. Corrections — Stock market corrections? — How long?
3. Advisors — Financial advisors, brokers, bankers
4. Timing the market — Can we “time the market”?
5. Capital protection? — Is it real? Blue chips safe?
6. Leverage — Leveraged instruments (eg. CFDs)
7. Margin lending — Can it be safe?
8. Fall 90%? — Can investments really fall 90%?
9. Buy-and-Hold? — Is it time to re-think this strategy?
10. Chart reading? — Can be useful! Here's how...
Back to Agenda
86
Beware!The bears #9 — “Buy and Hold”
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Lesson #9
The Buy-and-Hold strategy.Is it time to re-think?
87
Beware!The bears #9 — “Buy and Hold”
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The set-and-forget approach● Tends to work in a bull market.● Many people have used this approach
along with a margin loan, and pre-paid 12 months of interest expense.
● Can this approach ride out the downs of the market?
● Is this a sensible approach to investing?
88
Beware!The bears #9 — “Buy and Hold”
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Opportunity costs● Some people buy (blue chip) shares and hold
for the steady dividend income stream.● Even though the share price might fluctuate.● This might be okay...depends on your:
● strategy, and● investment timeframe / horizon
89
Beware!The bears #9 — “Buy and Hold”
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The lesson:
There are times when the shares in some companies should/could be
converted to cold hard cash.
Actively monitor the portfolio.
90
The TEN Lessons!Beware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The 10 Key Lessons1. Cycles — Markets, stocks, property all run in cycles
2. Corrections — Stock market corrections? — How long?
3. Advisors — Financial advisors, brokers, bankers
4. Timing the market — Can we “time the market”?
5. Capital protection? — Is it real? Blue chips safe?
6. Leverage — Leveraged instruments (eg. CFDs)
7. Margin lending — Can it be safe?
8. Fall 90%? — Can investments really fall 90%?
9. Buy-and-Hold? — Is it time to re-think this strategy?
10. Chart reading? — Can be useful! Here's how...
Back to Agenda
91
Beware!The bears #10 — Charts can be useful
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Lesson #10
Chart reading ?
Six useful tools...
92
Beware!The bears #10 — Charts can be useful
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
How to anticipate the next one?● Find some useful price charts● Watch the market (eg. market index — XAO)● Use useful technical indicator tools:
● Moving Average (30-week, GMMA)● Coppock indicator● Momentum (and search for divergence)● Money Flow (and search for divergence)
● View good quality charts
93
Beware!The bears #10 — Charts can be useful
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Sample charts
Some sample and
useful price charts follow...
94
Beware!The bears #10 — Charts can be useful
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Coppock Indicator
95
Beware!The bears #10 — Charts can be useful
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Momentum Indicator (monthly)
96
Beware!The bears #10 — Charts can be useful
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Stan Weinstein
97
Beware!The bears #10 — Charts can be useful
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Momentum divergence (weekly)
98
Beware!The bears #10 — Charts can be useful
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Money Flow indicator
99
Beware!The bears #10 — Charts can be useful
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Guppy MMA indicator
100
Beware!The bears #10 — Charts can be useful
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
These charts...
The charts on the previous slides are already posted on the web
and updated weekly
Visit:
www.robertbrain.com/weekly
101
Beware!The bears #10 — Charts can be useful
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The lesson:
Charts and Technical Analysis
can be very useful(better than tea leaves).
102
Introduction & HousekeepingBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
AGENDA1. Current Crisis — Background and Recent History
2. Some general observations
3. The 10 Key Lessons — some details
4. Online Charts and Software
5. Charts and Technical Analysis
6. Before you trade!
7. What to do next?
8. Recommended Reading
9. Summary.
103
Online Charts & SoftwareBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Online Charts and Software ?
AGENDA
104
Online Charts & SoftwareBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Online Charts● Some web sites provide reasonable
charting services● Can include some indicators● Charts tend to be a little rough or simplistic.
105
Online Charts & SoftwareBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Online ChartsWeb sites to view price charts:● ASX web site ● at Yahoo ● Big Charts . com ● NetQuote ● ADVFN
The real URLs are on my web site Portal page
www.robertbrain.com/stocks_portal
106
Online Charts & SoftwareBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Charting Software● There are a few products around;
with different strengths and weaknesses● Normally installed onto your computer● Rely on getting share price data
from some where (a data service)● Need to download
End-of-Day (EOD) data each day.
107
Online Charts & SoftwareBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Charting Software — Overview● Easy access to download data● Price charts in various time periods (D, W, M)● Intraday data (optional)● Indicators – draw them on the chart● Watchlists – several lists of stocks
to easily keep an eye on● Scans – Specify selection criteria and
scan the data for stocks that match the criteria● Line studies and annotations on the chart.
108
Online Charts & SoftwareBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Charting Software — Costs● Some of the charting tools are free● Some cost $100s● Some cost $1,000s● What about training and support?
Availability and costs?
109
Online Charts & SoftwareBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Charting Software — EOD● For short-term traders
who want to buy and sell within a day, intraday data (a live data plan) is probably the only way to go
● For everybody else, End of Day (EOD) data should suffice.
110
Online Charts & SoftwareBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Charting Software — Data● Free data tends to be 20-minutes delayed
in Australia (otherwise royalties are payable to view live data, so it costs more)
● Real live data is available from brokers and data providers
● EOD data is available from various sources (but check for data compatibility with your chosen software).
111
Online Charts & SoftwareBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Charting Software ProductsInstall software to do chart analysis on your PC.● BullCharts (this is my preferred package)● ProTrader (not CommSec) ● MetaStock ● Market Analyst ● EzyChart ● NetQuote ● (plus a few others)
112
Introduction & HousekeepingBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
AGENDA1. Current Crisis — Background and Recent History
2. Some general observations
3. The 10 Key Lessons — some details
4. Online Charts and Software
5. Charts and Technical Analysis
6. Before you trade!
7. What to do next?
8. Recommended Reading
9. Summary.
113
Beware!The bears Technical Analysis
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Charts and Technical Analysis
A little more detail if time permits...?
AGENDA
114
Beware!The bears Technical Analysis
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
What is it?
The study of share price charts using various analysis techniques
to form a view as to likely future price action.
115
Beware!The bears Technical Analysis
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Share price charts● Line charts are
common● In the media (TV,
newspapers)● But, don't show
range of prices in each period
● Help to identify trends.
116
Beware!The bears Technical Analysis
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Trends and Trend LinesWould you have been tempted to buy this stock? why?
117
Beware!The bears Technical Analysis
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Trends and Trend LinesIf you knew this stock was falling,would you buy it? (many people did buy it)
118
Beware!The bears Technical Analysis
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Trends and Trend Lines● HH = Higher Highs● HL = Higher Lows● Place a straight Trend
Line under the action.● “The trend is
your friend”.
119
Beware!The bears Technical Analysis
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The Moving Average (MA)● Is common on charts in
the media.● AFR shows 60 day MA● This chart shows
14 period SMA
120
Beware!The bears Technical Analysis
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Candlestick basicsShows:● Open● High● Low● Close● White candle — opens low, closes high● Black candle — opens high, closes low
121
Beware!The bears Technical Analysis
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Support and Resistance● A very basic and important tool for interpreting
price charts – used by many professional traders
● Generally a horizontal line (can be a “zone”)● Support – above which the price moves up and
down, bouncing up off the line (like a floor)● Resistance – below which the price moves up
to the line and retreats below it again (ceiling)● Indicates emotion and psychology
in the market.
122
Beware!The bears Technical Analysis
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Support and Resistance
123
Beware!The bears Technical Analysis
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Technical Analysis — Summary● Huge topic● The basic concepts are simple and very useful● The average investor could benefit
from even a small understanding.
124
Introduction & HousekeepingBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
AGENDA1. Current Crisis — Background and Recent History
2. Some general observations
3. The 10 Key Lessons — some details
4. Online Charts and Software
5. Charts and Technical Analysis
6. Before you trade!
7. What to do next?
8. Recommended Reading
9. Summary.
125
Before trading...!Beware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Stop!
Before you start share trading...
126
Before trading...!Beware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Some key tips● Trading Plan — must have!● Trading Strategy/ies — must have!● Stop loss positions — must have!● Trading Journal and Diary● Money & Risk Management strategies● Can you cope with the emotion?
(no more for now)
127
Beware!The bears What Next?
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Take no action?
What to do next?
128
Beware!The bears What Next?
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Some choices:With any new information, you now have some choices that only you can decide:
(a) Take no action.
(b) Learn more...how the market works
(c) Learn more...why it behaves the way it does
(d) Start monitoring the market “periodically”
(e) Leave super as it is? or consider re-weighting
(f) Take a more “active role” with investing.
129
Beware!The bears What Next?
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Possible action points(a) Learn more about the market...
(b) Learn how to identify trends...
(c) Learn how to interpret price charts...
(d) Learn more about candlesticks and patterns
(e) Learn more about Trading Plans and Trading Strategies
(f) Are you suitable to be a “trader”? (even an end-of-week trader).
130
Beware!The bears What Next?
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
(a) ATAA (Australian Technical Analysts Association) www.ataa.com.au
(b) Specialist books: Educated Investor bookshop — Collins Street, Melbourne(ask for Robert's discount)
(c) Brainy's Share Market Toolbox web siteWeekly market updates, charting, seminars, workshops, eNewsletters, Tip Sheets and other resources on the web: www.robertbrain.com
(d) Other trainers, educators and service providers.
More information and help
131
Summary & Wrap upBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Recommended Reading● Phillip J Anderson (2008). “The Secret Life of
Real Estate — How it moves and why”. Shepheard-Walwyn.
● Frank Watkins (2003). “Exploding the Myths”, Vocational Education & Training Publications.
● Stan Weinstein (1988). “Secrets for Profiting in Bull and Bear Markets”, McGraw-Hill.
● Harry S. Dent (2009). “The Great Depression Ahead”. Schwartz Media. www.hsdent.com
AGENDA
132
Summary & Wrap upBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
SUMMARY● Bear markets come around fairly often● Their duration and impact can be vast● Background behind the GFC● The 10 Key Lessons from the GFC● Charts, web sites, software● We are now wiser about
investing (or trading) going forward.
133
Summary & Wrap upBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
The 10 Key Lessons — Recap1) Market cycles (and property) — they are real
2) Market corrections and bears — they really happen
3) Financial advisors — take care
4) We can “time” the market
5) Capital-protected schemes. Blue chip = safe?
6) Leverage — Need to understand the “rules” of the game.
7) Margin Lending — can be dangerous or safe.
8) Blue Chips and others can fall by 50-90%
9) “Buy-and-Hold” — Is it time to re-think this strategy?
10) Charts can be useful.
134
Summary & Wrap upBeware!The bears
© Copyright 2009 Robert B. Brain — Brainy's Share Market Toolbox — www.robertbrain.com
Consider: Sensible Investing?
Any Questions?
ps: A copy of the slides and more details are available.
www.robertbrain.com Or, simply send an email request to:
135
* Global Financial Crisis
The End
136
* Global Financial Crisis
THE END
THANK YOU
(backup slides follow)