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Junk

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Super Contributor
Disclaimer: This is not a trading post - it is a medium term investment post (5-10 years). I am not an economist. I am a part time investor. I am a natural scientist, so do not have my nose in the FinWeek and charts all the time. So please bear with me on this.

I'm reading a lot about the likely downgrade to junk. I would like some thoughts on how to deal with this, how to move, how to maximise. My investment portfolio is rather geared towards financials at the moment (I bought into the bottom of the fin crisis), and this worries me a touch. My current thought wavers almost daily between burying my head in the sand, selling all my financials and selling a %.

I read Skaap's comment that while SA might get a downgrade, that wont specifically apply to our companies...but still....if we get a downgrade the market gets a kick. I read Simon's blog - about having very little SA Inc exposure and selling into the bounces. I read Chris Hart's comment on the downgrade etc.....

But..But I can tell you lots about plants, but making head or tails of how a downgrade might affect us is difficult. This is why we have the forum, surely?

I am not asking what I should do....all I want is some considered opinion on what the market might do....lets face it, its probably a bleak picture, so I would rather plan for the worst, than take the risk that all is well.

Please, please forum, none of this "well if you are asking, you don't have a plan" sort of reply....
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29 REPLIES 29
Regular Contributor
In my opinion I am holding on. I also hold a lot of financial stocks. Although the inflation rate will increase and there will be alot of investment outflows. I think it will do the country good in terms of stock market. Gives us opportunity to buy stocks at very cheap prices.
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Super Contributor
Thank you....what about retail and property - in general? I dont hold much - but am curious about these sectors if we go junk. With less money, would retail suffer? Interest rates go up, surely property suffers.
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Valued Contributor
financials are going to get hit hard, CEOs of both SBK and SBK said as much in latest results
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Super Contributor
Forget the downgrade for the moment - it is just a symptom and has been a long time coming. The real problems are endemic and pervasive. There is no plan to deal with these problems - and at this stage probably none that could. Add to this that it behoves our current regime to pursue a line that actually exacerbates all of this and even puts them in a corner where eventually they simply cannot deliver on their rhetoric and need to "up the ante," as it were. The Rand is in a long term downtrend. I generally have scant regard for charts but - this is a long term chart that has broken out of a multi-year consolidation and looks shocking. This forum is too worried about near term Rand strength. Our productive complex is in decay - foreign investment has evaporated and employment growth is looking like a fairly tale. Financials rely on growth - without it their bad debts catch up in a hurry (and these will ratchet up in this environment in any case.) Some would trade the FINI's for a bounce perhaps but why bother(?) Personally - I think the appropriate phrase is "get the hell out of Dodge!"I
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Super Contributor
ok...sell all your investment positions and trade the price...
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Super Contributor
I see on your Blog you are keeping DSY - is this correct? Would this fall out the broad financial class? Dim question?
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Super Contributor
No - I never said all. Not all! I never actually said sell anything! I said - "I" would get out. I certainly would not sell up and then sit in the Rand! There are Rand hedges - in particular the foreign owned stuff. There are cyclical foreign owned entities which are way down on historic prices - the miners. There are hidden foreign plays within the local listings. You have to do your homework. By way of example - I would buy REINET (and have) even if I were in another country - for a host of very specific reasons.
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Super Contributor
I would consider using "put warrants" to protect my long term investment, or in the case of Cfd, go short by selling at key level. if your knowledge of warrant is limited , then it is best to stay away.
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Super Contributor
sure...ok - I misread your "get out of dodge"....agree there are lots of rand hedges...and shares I wont be selling.
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Super Contributor
@Blik, the above comment is basically what you should do as part of a risk management strategy. I do not have an opinion about how the market will behave.
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Super Contributor
yip....makes sense...but I am not sure I am going to hedge my investment strategy with what will in all likelihood for me, be a high risk trading strategy....I think I will either hunker down or sell out of the shares I deem exposed. I am just treading a little line on timing and thoughts....but at the moment I am trending towards selling out and staying safer. I am just playing around with the CGT scenario. Thank you for the input.
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Super Contributor
by the end of May, all of my trading portfolios will be in cash(sell in May). Will hold to my investment portfolios. If the markets sell off, will add to long term investment portfolios based on value/price(fundamentals).And oh, yes, income from the volatility trading the ALSI. No downgrade, same plan.
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Super Contributor
I guess one thing in my favour, is that I know I am not good enough to trade my way through this. I suspect I will exit various positions and watch. For me, at my age, there is no harm in watching a bit.
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Super Contributor
Contrary to what some might say - nobody is good enough to trade their way through a crisis. Just look at the graveyard full of expert fund managers. Hedge funds in particular - they remove growth - so why take risk (a bit simplistic- but there it is!) It's the unknown unknown that gets you in the end.
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Super Contributor
trades off before the crisis , then trade the volatilty(day trade)
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Super Contributor
But honey - I wasn't talking about you - I was talking about trying to surf a (read any and all) crises. One of them will get you. The danger is - if you keep running from perceived crises though - most will turn out not to be a crisis at all- and you will miss the market.
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Super Contributor
AND - yes - I saw that you would hold on to your investment portfolios and that last was about "one" not "you."
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Super Contributor
ok - let me qualify that....I do not have a system that will put me in the black....my system is iffy, prone to my moods and best flushed down the toilet. I only keep it going to keep some skin in the game. Most days my trading account is dormant. If I used any of my investment portfolio cash for trading, I'd do better at the casino in PE I suspect. But I learn a lot from the trading...believe it or not...and an important lesson I have learned is that I dont know nearly enough.
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Not applicable
Blik - you are confusing your strategies here. Trading and investing have totally different approaches. As a trader - you make a call on long or short - you are either right or wrong. As an investor - you can only be long. Now, as a trader, because you are leveraged, cost averaging is a big no-no. As an investor - cost averaging is one of the best strategies out there. assuming you have selected a quality stock to invest in in the first place. If you have good investments, and the price pulls back in a crisis - best news you could ask for - buy more! It is that simple. Get your plan straight and stick to it. Stop panicking - emotions do not belong in the world of trading nor investing.
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