[MalcolmSm1th]

I've found that if one has a decent stock or one that people want (not necessarily the same thing) then the corrections aren't too bad in these occurances. Of course, if the market takes a dive into a full blown bear market then things will be different.

My hardest problem (see above) is siting on my hands I have drawn trendlines and areas of support in ShareScope (my charting application of choice) and if the price falls below that then I may sell on review. But I am trying not to react to the market and to wait it out unless things go wrong.

On the whole, so far, things are going well. Some stocks of mine are going up and none have been declared fit to sell. But that could all change in ten minutes when the London barrow boys get to work...

[theory6453]

As I'm a noob I wonder if this question is appropriate here:

I'm noticing that most shares seem to correlate quite strongly with the various indices and that UK, US, European and Japanese indices seem to be closely correlated as well. E.g. most things seem to be dropping right now and I suspect things will all go back up when we get out of the current pullback.

As an example of correlation a Nordic fund I bought into a month of so back seems to very closely match the FTSE250.

This seems to negate efforts to diversify outside ones home market. The only things that seem not to be tightly correlated seem to be going down or at best widely fluctuating with an overall very long lumpy trend.

It would be nice if diversifying would smooth out the peaks and troughs, but I can't see a good way to do it. What do other people do, just not worry about it?

Correlation in stocks in the world markets tends to be very high due to numerous reasons, and the US market tends to be the main driver in general due to the higher volumes that trade it. So unfortunately diversification within stocks won't protect you from market corrections as the majority have strong correlations with the indexes. So the only way to get true diversification is to trade in different asset classes. i.e. stocks, bonds, commodities, precious metals, property, treasuries etc. As for example stocks and treasuries have a fairly inverse relationship, whereas the others move for their own reasons.

Agree with Isatrader... If you want a true hedge on equities, you're going to need to invest in a different asset class... most commonly bonds or gold/silver. These are the types of things that people move their money into when equities are tanking and vice versa. The equities indexes around the world closely follow each other so when one is up/down, the others are likely to do the same due to the tight correlation.

Diversification outside of one's one market is encouraged but if it's in the same asset class (equities) then its likely going to do what the rest of the global market is doing.

Hope that helps.

[pcabc]

I've found that if one has a decent stock or one that people want (not necessarily the same thing) then the corrections aren't too bad in these occurances. Of course, if the market takes a dive into a full blown bear market then things will be different.

I have mainly funds at present and quite a few items that were picked before I got into Weinstein's book. Of the shares that I have picked I suspect many were likely ripe for pullbacks in any case. Most funds seem to track the indicies in their short-term fluctuations from what I have seen (over a limited period). Everything from the MA30 is in stage 2. Looking at the stocks it seems the ones that match your stellar category in the UK are mainly AIM shares from what I can see.

My hardest problem (see above) is siting on my hands I have drawn trendlines and areas of support in ShareScope (my charting application of choice) and if the price falls below that then I may sell on review. But I am trying not to react to the market and to wait it out unless things go wrong.

On the whole, so far, things are going well. Some stocks of mine are going up and none have been declared fit to sell. But that could all change in ten minutes when the London barrow boys get to work...

Quite. I'm still getting my eye in so I need to learn how concerned I should or should not be during the pullbacks. The 30 week MA is still rising on every thing I have, but on one or two it is getting flatter. Some aggressive use of 'when to sell' got me out of Diageo earlier in the year, which looks like the correct decision now and GlaxoSmithKlien, which was probably the right move. Looks like I was too aggressive in dumping Greene King.

I'm finding sitting on my hands quite hard now as although most MA30 lines are still going up I feel a bit nervous that a general stage 3 will start from the indices (e.g. N225). However, if I do sell, as happened earlier in the year, I suspect I'll find sitting on the cash a little tricky as well - when it could be reinvested.

What appears to affect me is when something has gained say 12% drops back to 8% I seem to care a lot more then when 1 or 2 or my better (luckier) picks has got > 50% and drops back 5%. Unfortunately the latter case makes up only a small portion of my portfolio.

I suspect this will resolves itself a little with experience.

Pete

---

Correlation in stocks in the world markets tends to be very high due to numerous reasons, and the US market tends to be the main driver in general due to the higher volumes that trade it. So unfortunately diversification within stocks won't protect you from market corrections as the majority have strong correlations with the indexes. So the only way to get true diversification is to trade in different asset classes. i.e. stocks, bonds, commodities, precious metals, property, treasuries etc. As for example stocks and treasuries have a fairly inverse relationship, whereas the others move for their own reasons.

Agree with Isatrader... If you want a true hedge on equities, you're going to need to invest in a different asset class... most commonly bonds or gold/silver. These are the types of things that people move their money into when equities are tanking and vice versa. The equities indexes around the world closely follow each other so when one is up/down, the others are likely to do the same due to the tight correlation.

Thanks to both of you.

I've been somewhat surprised by the level of correlation. I've picked some non-UK funds that are in stage 2 to add some diversity rather than get into non-UK shares (in general) at present. However, I am getting suspicious that the result is no better than a FTSE250 tracker. I'm getting the impression that the various differences main indices is in the longer term - perhaps in a term longer than people using the trader or investor methods might find they hold a share.

Diversification outside of one's one market is encouraged but if it's in the same asset class (equities) then its likely going to do what the rest of the global market is doing.

Hope that helps.

It seems to me that at present equities are the only things in stage 2. Everything else sucks. Short commodities/gold/silver might be a plan but I am not ready to play that game and I suspect that they have been dropping so long that a bottom might start to form soon?

I wonder the lowering gold prices are what is driving the 'bullion by post' adverts that I see on TV right now.

[Tom]

News just came out today that one of the stocks that I am holding CADX is being acquired. As a beginner, I am wondering what I should do next?

[isatrader]

News just came out today that one of the stocks that I am holding CADX is being acquired. As a beginner, I am wondering what I should do next?

I've only had to deal with one takeover personally, and it was a lengthy process that took over six months from when the stock taken off the market and the deal finally closed and money was put back in my account. So I had no idea what was going on during that time and the money was locked up. Others will have had different experiences, but if it is trading at the deal price of $14 then it's likely to be locked there for foreseeable future unless they can negotiate a better price. So it depends whether there's any chance of a better deal imo to whether you'd sell early or wait for the deal to go through imo.

Find out more information about the deal before you do anything. Oh, and well done, as it was in a strong Stage 2 uptrend before the deal.

P.S. I think goodtyneguy had to deal with a recent takeover in MAKO, so would be worth asking him about that.

[MalcolmSm1th]

Tom, the usual thing to do is to sit back and smile. If it's a takeover then your share may increase in price. If it's a hostile takeover then there may be a second bidder coming in and then it's really fun.

If I am looking at the correct chart: Cadence Pharmaceuticals then it's interesting to see that there was a rise in volume and price in and around November of last year which would have taken the stock higher than the a recent previous high.

So, I guess this is another example that Stan Weinstein could have given in his book.

Good luck on the takeover and unless you have a significant stake in that company (ie you own a good percentage of it) then I would let the institutional investors decide on whether to accept the bid or not. I would just sit tight and raise my stops in case the stock price falls if the deal fails to go through.

Well done you for having a takeover situation.

[theblackmamba]

not forgetting they could pull out and it falls....gotto consider the bad scenario as well as good..

[MalcolmSm1th]

Exactly. This is why raising the stops is a good idea at this point.