My SMSF is today’s biggest loser

I’m a big loser today…

Not because U.S. markets sank overnight as speculation rose that the Federal Reserve may start “the taper” as soon as next week.

Not because my US-quoted 3D printing “wonder stock” dropped 4%, putting my potential ten-bagger off that little bit longer.

And not because BHP Billiton (ASX: BHP) shares are down again in morning trade the day after I suggested they could be 2014’s biggest winner, in terms of index points.

Read below for details on today’s biggest loser, a stock in which I’ve now lost thousands of dollars, but about which I’m feeling calm and cleansed, and ready to move on.

But first…

Someone forgot to tell U.S. investors about the Santa Rally, pushing U.S. markets to their biggest loss in five weeks.

A buyers’ strike, especially on the ASX. Poor us!

One pundit suggested the market may be succumbing to “buyer’s fatigue” after its big rally this year. Although the S&P 500 has now fallen six out of eight trading days in December, it’s still up 25% so far in 2013, on track for its biggest increase in a decade.

But what about us down here in Australia?

Back in late October, the S&P/ASX 200 was up 17% year to date, an outstanding return.

Today, after another 1% fall, Australia’s leading index is up a somewhat more modest 8.6%.

Just to be clear, that sort of gain is not to be sneezed at, especially when the cash rate is at just 2.5%. And if you own the big banks, you’re likely well ahead of the benchmark, given Commonwealth Bank of Australia (ASX: CBA) is up 17.5% year to date, Australia and New Zealand Banking Group (ASX: ANZ) is up 20%, National Australia Bank (ASX: NAB) is up 30.5% and Westpac Banking Corp (ASX: WBC) is up 17.3% so far in 2013.

Today makes the ASX’s sixth day in a row of losses. At its low point of the day, the S&P/ASX 200 was down 7.8% from its late October peak, not only seemingly headed below 5,000, but into official correction territory. (A correction is defined as a 10% fall.)

If you are feeling poorer today, and indeed over the past three months, you’re not alone.

“Please stop that crap”

I received an email from John. Seems he took exception to the suggestion yesterday the market might be about to embark on a pre-Christmas surge…

“Your correspondent yesterday must believe in the tooth fairy as well as Santa. Maybe he is a fully paid up member of the “Cargo Cult’ well. 5500 by Christmas. More likely 4750. Can you ask your columnists to stop trying to be fortune tellers. If they were good at it they would be living in Bahamas instead of doing this to make ends meet. Optimism yes but bloody hell!!!!! Please stop that crap.”

Thanks, John. I don’t even know about the “Cargo Cult”, but clearly I need to find out more.

If you’ve followed us for any length of time, you’ll know now is definitely not the time to panic or fret. Leave that to me and my big loser.

On the contrary, now is the time to dust off your watch list, raid the savings account, and put some money to work in the market. All the better, John, if the ASX hits 4,750. Then it’s game on!

As markets slump, I for one have been putting money to work

That’s precisely what I’ve been doing myself, putting some money to work last night in some U.S.-quoted stocks, and setting up a couple more trades that will trigger if and when the stocks fall a little bit further from their current quotes.

Happiness is waking up to a stock market bargain

Like most people, I like a bargain. I also like nothing more than waking up in the morning and finding out that one of my limit orders has been triggered.

Of course, risks remain, as witnessed by my massive blow-up below, and any number of mining services disaster stories, including Forge Group Limited (ASX: FGE) and another of today’s train wrecks, Transfield Services Limited (ASX: TSE)The Sydney Morning Herald reports the latter company as suggesting the mining services sector could do it tough for another couple of years.

The mining boom really is over for mining services companies. But it still has legs for the majors, like BHP Billiton, who are now focused less on exploration and much more on production.

BHP down, unemployment rate up, interest rates down

The short-term market mayhem has seen BHP’s shares fall to $35.50. I’m still sitting, waiting and watching, but the further the stock falls, the more I’m interested — especially after today’s jobs numbers showed our unemployment rate edging up to 5.8%.

While the unemployment rate keeps ticking up, economists like Kieran Davies of Barclays are saying…

“…the labour market will be weak over the next year or so just because the economy is likely to find it challenging as the resources boom starts to wind down.”

There remains every chance of Glenn Stevens and his merry men at the RBA cutting interest rates in their first meeting back on the job in February next year.

Cash rate to 2.25% in February?

Only yesterday, Westpac’s Bill Evans retained and reiterated his call for the RBA to knock the cash rate down to 2.25%.

Look out below, term deposit rates. Enjoy your Christmas, while you can.

Small cap stocks in correction territory… opportunities aplenty

If you thought ASX blue chip stocks were on the nose, spare a thought for small cap investors. The S&P/ASX Small Ordinaries index is down almost 10% this year, virtually in correction territory.

The index’s huge losers are dominated, as you might expect, by blown-up mining companies, including Boart Longyear Limited (ASX: BLY), down 85% in 2013, Fleetword Corp (ASX: FWD) down 75% and my dog of the year, Lynas Corp (ASX: LYC) down 50%.

Rather than lament and dwell on the past, now’s a perfect time to dig in an look for opportunities. As it so happens, as I was looking down the list of small cap losers, I came across one more company with shares down 52% this year…

This small cap oil producer’s shares are down 52%…

It’s likely you’ve never heard of this small oil company. I’ve looked at it previously and passed — I just couldn’t get comfortable with the company.

But now it’s moved from being an explorer to being a producer. Its finances are shored up (it recently had a successful capital raising at a share price almost 20% higher than it currently trades), and its acreage trades at almost 6 times the company’s estimate of its net present value.

I’ll keep you posted, but in the meantime, the lower the market, and the stocks I’ve got my eye on, the better.

I am the biggest loser

Now… onto that train wreck, my biggest loser of the day.

Sadly, I own Codan (ASX: CDA), a stock that’s fallen around 40% today to trade at 80 cents. My buy price was $2.69, meaning I’ve dug myself into a 70% hole.

During the great gold-price bubble, Codan had huge success selling their high-end gold detectors into Africa, including Sudan.

Gold detectors in Sudan

Source: Gold In Sudan

But in recent times, sales have fallen off a cliff (or should that be a sand dune?) so much so that this morning Codan admitted their dectector sales had collapsed by 80% when compared to last year.

It seems all that glitters is not gold. That when the gold price falls, prospectors stop prospecting. That civil unrest in Sudan is inevitable.

It’s a dog, and I’ve lost thousands

The warning signs are in the picture above. In hindsight, stating the obvious, it doesn’t paint a picture of a sustainable growth business generating oodles of recurring revenue. And if it doesn’t look like a duck, some day it won’t sound like a duck.

Today is the day Codan’s gold detection business went woof. Thousands of my dollars have gone up in smoke, likely never to return, for a very, very long time at least.

Just to get back to my buy price, Codan shares will have to gain 226%.

Although you wish you had your time again, you can’t change the past. The dollar loss is painful. But in a diversified portfolio, the percentage loss is relatively small, my SMSF being down a modest 0.9% today.

My SMSF lives to fight another day

Codan now makes up just 0.9% of my total SMSF. At that level, it simply can’t do any more meaningful damage to my retirement fund. Once the dust settles, I may top up my holding in Codan, probably at lower prices than on offer today. The company has more strings to its bow than just gold detectors, but I for one will need a very large margin of safety before committing new funds to this set of damaged goods.

My next 226% winner…

Finding 226% winners is far, far easier said than done. You rarely make your money back the same way you lost it. As things stand now, I reckon I might have more chance with my little-known oil producer than with Codan.

If nothing else, gushing oil wells paints a far prettier picture than four lonely men waving wands in the desert.

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Of the companies mentioned above, Bruce Jackson has an interest in BHP, Commonwealth Bank, ANZ, Westpac, Lynas and Codan.

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