Long-term investors in the share market usually see short-term speculators as a nuisance, especially negative speculators. They bet on markets or stocks falling then spread rumours to help their cause. They use the sections of the press that like to report alarming news to their advantage.
Subscribe now for unlimited access.
$0/
(min cost $0)
or signup to continue reading
When prices fall they sell for a quick profit. In time the share price usually recovers to where it was as long term investors realise the feasible sounding story they were told was greatly exaggerated.
However the negative speculators provide one benefit to long term investors – the chance to buy shares cheaply. Recently we have seen regular predictions of impending doom for Australian retailers because online retail giant Amazon is planning to enter our market.
Back in February Harvey Norman shares were trading at $5.00, Myer’s were $1.25 and JB Hifi’s $28.50. Since then Harvey Norman has fallen by a quarter to $3.75, Myer is down 30 per cent to 87 cents and JB Hifi 20 per cent to $23.00. Their business performances are little changed.
The falls are almost entirely due to fears of Amazon, fanned by the negative speculators. While Amazon will compete for market share and does pose some threat long term these falls are much greater than is justified.
The first panic over the threat of online retailers occurred in 2011-12. Harvey Norman shares fell below $2.00. The threat had little effect. Those who bought then, including the writer, have been paid annual dividends of about 7 per cent including tax credits and seen healthy gains.
A similar event occurred with newspapers. In 2012-13 there were many reports of the impending death of newspapers. Very soon everyone would get their news online we were told. Shares in Fairfax Media, publisher of this newspaper, fell below 50 cents.
Of course newspapers didn’t die, though their circulation has reduced. Fairfax shares have recovered to $1.25 and a buyer has launched a takeover bid for the company. Investors who bought the shares below 50 cents, including the writer, have been rewarded with 4 cents per year dividends and 150 per cent gain.
Another favourite story the negative speculators have run several times is that the Chinese economy is slowing dramatically. Of course it has never happened but it has caused sharp falls in Chinese shares, followed by recovery.
Dire outcomes don’t happen quickly and companies rise to challenges and reinvent themselves. Media companies have boosted their online presence. Retailers know you can’t deliver personal service over the internet. Retailers’ shares look to be good value at present.
