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Market News Have You Worried?

The Successful InvestorThese days there have a been a number of high profile companies impacted negatively with market and economic news and I wanted to discuss how best to handle the news. The first reaction might be to sell or stay away while in fact, in many cases, it should be a case to initiate a position.

It’s important to look at the reasons why you bought those companies in the first place and assess those reasons again. If your assessment doesn’t match the reason why you bought it, it’s fair to dispose of your investments.

Don’t Be A Sheep - Control Your Emotions

Keep emotions at bay. Even with a 20% loss, as I was recently faced with Potash (POT), you don’t have to sell in fear. The reasons why I purchased POT are still there today and I am long on my investments. You can’t control economic events and you should not react to economic events without a valid reason.

In some cases, a drop in share price can be compounded by funds tracking those companies and adjusting their holding to match the market capitalization and sector weighting. Potash lost $6B in market capitalization when the Russian company decided to pull back from the pricing cartel. Being one of the large companies on the TSX, many funds had to adjust their holdings which triggers electronic trading. (A major reason to not use market price when placing an order.)

Know Why You Invest

Here are some questions about recent market news to assess your emotional reaction.

When Verizon announced its intention to acquire Wind Mobile, how did you react?

  • I wanted to sell
  • I wanted to buy more
  • I wanted to initiate a position
  • I stayed put – I am satisfied with my holdings

The first answer is giving in and reacting to news events. The purchase is not complete and the Canadian Telecoms are well aware of the challenges Verizon would bring. Still, both BCE and Telus beat earnings for this past quarter.

Related: How Will Verizon Impact the Telecoms?

When the Russian company decided to pull away from the cartel, how did you react?

  • I wanted to sell
  • I wanted to buy more
  • I wanted to initiate a position
  • I stayed put – I am satisfied with my holdings

The move is compared to Saudi Arabia pulling out of OPEC … It will put pressure on pricing but earnings are not just about pricing either. There are many other factors. New deals can also be struck and different agreements could be put in place.

In every situations, it’s important to look at the opportunities as well.

Still Worried?

The Successful Newsletter has me covered on the news front by reaffirming the reasons why I hold the stocks. Don’t hesitate – Sign up now! For $39, you get access to an amazing newsletter from a professional team.

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Potash News

Be patient and seek information from experts you trust. Pat McKeough’s newsletter and hotline are always pertinent and timed appropriately. Not long after the Potash drop, Pat emailed all subscribers with his take on the situation and reiterated his confidence in POT.

Here is a snippet of his communication: “In the past decade, Potash Corp. has expanded its mines to meet rising fertilizer demand. These projects are now largely complete. As a result, the company will spend $1.5 billion on upgrades in
2013, down 28.6% from $2.1 billion in 2012. That decline has freed up cash for dividends. Potash Corp. has raised its quarterly payout three times in the past year. The current annual rate of $1.40 U.S. a share yields 3.6%.”

Verizon News

As for Verizon, Pat also had very pertinent comments and very timely as well. Not only are the comments helping investor navigator tumultuous news, it is explained in simple and clear language while being delivered when appropriate.

From his comments: “… The move of Verizon Communications into Canada will increase competition for Telus, which is Canada’s second-largest wireless service provider after Rogers Communications. Verizon could also use its large size to offer consumers cheaper smartphones and lower roaming fees in the U.S. …

Railway News

After the unfortunate disaster in Lac Megantic, Pat also reviewed the impact of potential new regulations for the railway companies. It was, yet again, timely information for investors and filled with knowledge about the companies and the potential impact.

From the August Edition: ” … It seems likely that regulators will require railways to replace their current tanker cars with models that can better withstand collisions. They may also demand that railways place more workers on their trains, and install automatic-braking equipment. Installing new equipment could make it harder for CP to achieve its cost-cutting targets. The company aims to cut its operating ratio from 75.8% in the first quarter of 2013 to 65% in 2016 (Operating ratio is calculated by dividing a company’s regular operating costs by its revenue. The lower the ratio, the better.) …

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5 Responses to "Market News Have You Worried?"

  1. David says:

    Hey Passive

    For me regardless of what Telus does I will hold. As a BC resident and Telus client, the shares dividend cover our phone/internet cost. I pay Telus, Telus pays me. As Telus isn’t going away anytime soon, the arrangement makes me and my account happy.

    Not having bought POT and interested. It is nice to have ‘real’ information. Imagine that you knew the ‘potash cartel’ was going south. You would wait to buy. How does one know such things.

    Being a little cog/slave that level of ‘information’ isn’t happening anytime soon.

    It sucks to get caught in the blender. No matter how you spin it.

    D.

  2. Liquid says:

    Just like how it’s important to rebalance our portfolios once in awhile, it’s also useful to periodically reassess the reasons of why we own the stocks we do. I know 10+ years from now POT will most likely go back up so I’m not worried about the short term fluctuations either. But I AM tempted to buy more of it now to lower my abc :) If only I had more money to invest though lol :D

  3. The main statistic I watch is the PE for the market as a whole. It’s still under 20, so that makes me not nervous. At least not quite yet…

  4. With the recent pullback, my only temptation has been to buy some stocks on which Ive had an eye. I am still holding out before buying more securities waiting for a better entry point.

  5. Yes I agree with you that we should control our emotions. It’s not really what happens to us but always how we react on it. Sometimes we made our decision out of our emotions..

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