Was the bottom on 27 Oct?

Was the bottom of the current bear market reached on 27 October? You will note that most of our candidate scans were run as of 29 October, as we felt this was a fair guess to the bottom of the market from which we obviously want to pick candidate stocks. But there is a Chinese proverb that goes : "Man who try to pick bottom get very smelly fingers!"

Our intent at PowerStocks is not to pick the bottom, but to get to a point close to the bottom either on the way down or on the way up. We want to figure when this bottom is close as that's when our research has shown the best value is available. Look at the below table on past JSE bear markets for the last 21 years (click for detailed view.)



The current bear has pulled the ALSI down 44.7%, slightly shy of the 45.9% in the '87 crash. The PE on the ALSI is down 50% to 8.3 (incidentally the same as the PE at the bottom of the last bear market) and the Dividend Yield is up 104% to 4.9%. High yielding stocks are going for a song.

Another interesting point is that those wiley investors that bought on 27 Oct would have shown a 15% increase by 5th Nov, merely 9 days later! Although earnings may drop in the ensuing months as business conditions tighten, markets are mostly forward looking and in all likelyhood the bulk of this has been priced in already. As Warren Buffet eloquently puts it "If you wait for the Robins to arrive, you will have missed Spring." Similarly, if you wait for all the good news before climbing in, you will have probably missed a good buying opportunity.

We will continue to peg 29th October as our theoretical "Bottom" in ongoing research and stock screens unless the ALSI goes significantly below 18,000. On that point, it is interesting to note that the trough on 27th October is 144% higher than the trough on the last crash - makes you think doesn't it?

Finally we note with interest that the current fall is very similar to the fall of '98. We are down 44.7% now and were down 43.8% then. We have been falling for 158 days versus 144 days then. The crash of '98 may be a better candidate for testing our theories we devised around the much longer bear market of 2002, and that's exactly what our next scope of research work will be. We will re-run the PE, Price:Book and Piotroski valuations on the crash of '98 and compare these to growths achieved by stocks in the subsequent 45 month bull. We can then compare our findings to the crash of 2002 to see if they are consistant!