Podcast: Fear and loathing on the JSE

In JSE Direct, Latest by Simon Brown

Simon Shares

Fear and loathing on the JSE

We’re seeing a new trend on the JSE whereby stock prices are slaughtered after poor (or even just modest) results. Sure bad results have always hurt a share price, but it used to be that a 10% down day was a wildly bad day. Now however 10% is hardly even warming up with many stocks being hit way harder (think 30% down on Aspen results).

I think there are a bunch reasons for this new trend.

  • Firstly; the Steinhoff (JSE code: SNH) fear. After Steinhoff there is real fear in the market. Fear that a ‘great’ company may actually be smoke and mirrors and investors have no idea which is the next Steinhoff. So rather then be caught out they just sell, and sell. This fear is real. Steinhoff was generally considered to be a top quality company that we now know to be built on fraud and if an investor missed this – then what else could they miss. Of course many where not convinced by Steinhoff, but the majority who where are truthfully not doubting their own ability so selling is the easy option. This will in time fade. The next bull market will help make investors gunho again believing they can spot the fakes (which history assured us is harder than they think).
  • The second issue is the US effect. For a long time in the US a small miss on results, and I stress the small miss. Not an epic miss, sees stocks getting sold off aggressively and we’re now seeing this locally. This is in large part to speed of news distribution coupled with the ease and cheapness of transacting. This trend is likely to remain into the future.
  • A third issue is the understand that few stocks are truly legendary and investor are less forgiving when the business model starts to unravel or dirt starts to show. Here fo example is EOH. It started with some rumours that the company quickly managed but investor where not convinced and just kept on selling. The news got worse and investors carried on selling and the stock is now off almost 90% from its highs of over R180.

As investors we need to get used to this trend. Be good sellers (see last weeks podcast) and expect that even quality will disappoint the market at times and that disappointment will hurt. We need to be smart about when the issue is real or when it is just a knee jerk and short-term reaction.

But the bottom line is, expect the ride to be bumpier than usual. We need to remember that investing is for the long-term and that long-term is never in a straight line. We also need to remember that any stock can turn out to be trash and if it does we need to sell it regardless of how we feel about it, the loss or the potential. Trash is best trashed.

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JSEDirect is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.

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