An August Of Panic
Well, what an August that was!
Talk about the old cliché "rollercoaster ride" being right in the money...
Panic beset investors early in the month as they sold off, followed by panic buying as the markets got back into their stride again. There were quite a few lessons to be learned from the turmoil caused by the sub-prime fiasco. But the main one I suppose is really not over egging credit facilities available to traders who use CFDs and spread bets.
Of course it's great to be able to trade on credit but sometimes in a ‘market tumble' traders can be caught out by having too many big positions - when not really in a position to afford them.
It looks like some of the spread betting firms have recognised this and, to my knowledge, at least two of them have now reduced their "margins" on some shares , which seems sensible at this time. Some margins have doubled from 10% to 20%.
Until the markets settle down it seems sensible for traders to look carefully at positions and remember not to be overexposed whilst the markets remain so volatile. After all, it remains so important to protect capital as I've heard stories of some traders getting wiped out in August. Of course that's not surprising as that's when everything was being hit.
The other point is that it reinforces how important ‘stop losses' are - traders operating reasonably tight ones during the turmoil should have been able to get out without too much damage.
So far, I have found it lucrative to buy when the panic reaches a climax - i.e. buy when everyone around you is selling. I managed to pick up some really good bargains, which have since gone a lot higher. Of course, it does take a lot of courage to go against the crowd!
Elsewhere, it's interesting that some bids are coming in for some of the smaller companies.
One such example that I hold is Sondex - an oil services company snapped up by GEC for 460p a share. I am wondering whether this could be the start of more bids in this area, perhaps not just oil services sector companies but the smaller oil exploration companies too.
I have bought strategic stakes in one or two oil services sector shares and oil producers too. I have a feeling this winter we could see a number of the smaller companies taken out.