Nick Garlaounis 1Shares - Buy or Sell?
October 10th 2008 00:32
With the global sharemarket plunging dramatically over the last few months with more volatility yet to come a key question being asked by shareholders is should I buy or sell?
There are many who look at stop loss points and sell at simply break even, some drivers behind this type of decision can be quite personal and may well be based on financial needs at the time. In my view though, selling shares during a downturn is shortsighted as the sharemarket will alwyas bounce back over time.
The question is, do you have this time and can you sustain a paper loss? If the answer is yes then you need to buy during this time of volatility but you need to buy smart. The basics remain the same, buy in gloom and sell in boom. If you hold bank stocks which many investors do then do not fret, although bank stocks have taken the heaviest hit these shares will also recoup lost ground when the market turns.
So let's say you own 1000 shares in a major Australian bank which are worth $30 per share and they have fallen by $10 per share to $20, your paper loss is $10,000. Having said that, if you were to buy another 1000 shares at a price of $20 per share your cost average per share then becomes $25.
What this means is that when the market does turn your break even point is $5 less than it was before, when you combine this basic principle with DRP your cost average per share decreases therefore providing you with a greater buffer in the long run.
If you were to simply sell these shares because the scaremongers tell you to do so then you would realise the loss of $10,000. Remember, it is only when you sell your shares that a true loss occurs, otherwise it is a loss on paper and one that is not reliased unless you sell.
My opinion is that during these tough times, if you are in a position to do so I would be buying more quality long term shares and cost averaging your share portfolio. As mentioned this creates a larger profit buffer for the future and I would certainly be placing all available shares on a DRP for a 5 to 10 year period.
Bear in mind that this will not apply to everyone as each persons circumstances are different but as I said, if you are in a position to hold and purchase existing quality shares then I would be taking advantage of the credit crisis and not become part of it by selling through a knee jerk reaction mentality.
There are many who look at stop loss points and sell at simply break even, some drivers behind this type of decision can be quite personal and may well be based on financial needs at the time. In my view though, selling shares during a downturn is shortsighted as the sharemarket will alwyas bounce back over time.
The question is, do you have this time and can you sustain a paper loss? If the answer is yes then you need to buy during this time of volatility but you need to buy smart. The basics remain the same, buy in gloom and sell in boom. If you hold bank stocks which many investors do then do not fret, although bank stocks have taken the heaviest hit these shares will also recoup lost ground when the market turns.
So let's say you own 1000 shares in a major Australian bank which are worth $30 per share and they have fallen by $10 per share to $20, your paper loss is $10,000. Having said that, if you were to buy another 1000 shares at a price of $20 per share your cost average per share then becomes $25.
What this means is that when the market does turn your break even point is $5 less than it was before, when you combine this basic principle with DRP your cost average per share decreases therefore providing you with a greater buffer in the long run.
If you were to simply sell these shares because the scaremongers tell you to do so then you would realise the loss of $10,000. Remember, it is only when you sell your shares that a true loss occurs, otherwise it is a loss on paper and one that is not reliased unless you sell.
My opinion is that during these tough times, if you are in a position to do so I would be buying more quality long term shares and cost averaging your share portfolio. As mentioned this creates a larger profit buffer for the future and I would certainly be placing all available shares on a DRP for a 5 to 10 year period.
Bear in mind that this will not apply to everyone as each persons circumstances are different but as I said, if you are in a position to hold and purchase existing quality shares then I would be taking advantage of the credit crisis and not become part of it by selling through a knee jerk reaction mentality.
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