Panic Revisited
Whisper it quietly, but it does look as if 4,800 points is once again the floor for the FTSE 100 index. Two weeks ago such a thought would have horrified investors; this week it came as a massive relief.
There has been a fundamental shift in sentiment and it involves one of the recurring themes of this column. If the market shrugs off bad news and rises on the good news we are in a bull market. Over the past two weeks the market has shrugged off any good news and reacted violently to any bad news, indicating that we are in a bear market.
Forget any nonsense you may have read in the newspapers about a 20% fall representing a bear market. You cannot put precise figures on these things and to try to do so is meaningless. In any case, it does not tell us what will happen next week.
Last week I wrote that we could soon be staring at 5,000 points. That happened much sooner than I had hoped - indeed, I was rather hoping to be proved wrong. Particularly disconcerting was to see a very sharp recovery on Tuesday being destroyed by a further collapse on Wednesday.
Tuesday did, however, offer us one glimmer of hope. The market fell initially, plumbing the depths at 4,791 points, before its short lived surge That was the level at which we drew the line in 2009 and could well be the line that is drawn this time. If that proves to be the case we will probably have to hold on for a long, slow recovery in share prices. If that floor breaks, we are potentially staring at further falls of another 600 points.
I believe the floor will hold and have backed my judgment by using up the rest of my 2011-12 ISA allowance by investing in shares while the opportunity lasts. I am in for the long term and continue to pick shares with strong yields. Although my portfolio is showing a loss overall, the deficit has been wiped out by dividend gains so I am no worse off than I would have been had I cashed in, losing my past ISA allowances in the meantime.
I am fully invested at the moment but if I raise any more spare cash I will consider further share purchases unless the market runs very sharply higher. This could be the best buying opportunity for years to come. Even if companies are forced to half their dividends there are many that will still be offering yields of 2.5% or more.
The heavy falls are, admittedly, not without cause. It is the extent of the collapse that is pure panic and we should not base our judgement on panic.
Only the Lawyers Win at BP
Once again BP (BP.) is in the news for the wrong reasons. You might think that relations were already bad enough between the oil giant and its Russian ‘partners’ as the struggle wearily through arbitration proceedings over their TNK-BP joint venture.
Matters took two further turns for the worse, firstly when BP alleged that the four Russian billionaires in the venture had broken the agreement that the two sides would put all their Russian exploration through TNK. Then minority shareholders in TKN - BP and the Russian oligarchs hold 94.7% between them - launched a £1.8 billion lawsuit against two senior BP executives.
I should declare that I hold shares in rival Royal Dutch Shell (RDSB) and am very relieved to do so. I would still not touch BP with a bargepole. The shares have been on a downward trend since mid-January, losing 20% of their value in the meantime. That is no worse than the market generally and I think there are far better prospects elsewhere.
Weir and Wonderful
If you want an example of how bargains arise when shares are unfairly trampled in a stampede, look no further than specialist engineering group Weir (WEIR), which makes equipment for the mining, energy and oil sectors.
Weir shares had been on a roll until they topped 2200p late last month. Then they slumped all the way back to 1600p, the level they were at in March. That fall of 27% was completely unjustified and those who failed to buy in cheaply at the start of the year had a second chance.
The opportunity was short lived as sense prevailed. Weir this week was back up to 1840p and shareholders should certainly hold on as further rises will come. The case for buying in now is rather less compelling with Morningstar Premium showing the prospective yield at 1.9%. If you missed out, it is worth watching for any buying opportunities should the shares fall back again.
