Rams stock fall hurts investors

Published in the Geelong Advertiser

By Dale Gillham

EIGHTEEN weeks ago Rams Home Loan Group listed on the ASX at an opening price of $2.48. Within four weeks of listing it was trading at $0.89 and yesterday it was trading at $0.22.

No doubt, the demise of the share price has resulted from the sub prime mortgage meltdown based on the fact that Rams was funding its loans from sources that over exposed it to the sub prime mortgage market, which in retrospect has proven to be a high risk practice.

The challenge I have is that ordinary people invested in the float based on advice from brokers or other investment professionals who would have known about the potential risks of this investment. While investors would have been required to read the prospectus, in my experience these documents are often full of marketing hype with most of the important information hidden in the small print, and written in such a way that anyone without a finance degree would struggle to understand.

The statistics reveal that around 50 per cent of floats fail to deliver a profit after one year which is why in my opinion buying floats is risky business.

So what can we expect in the market?

As I have always stated, it is far better to trade on confirmation rather than speculation, and the events of the past few weeks have once again proven the value of this
statement. As a portfolio manager I have been waiting for confirmation of the market direction before making any decisions on my client portfolios.

Up until the past few days I believed there was a 75 per cent probability that the market would find support above the low of 6503 and trade up until Christmas. However, as we now know the market has fallen away strongly over the past few days to confirm that it will now fall until Christmas.

In my October 26 report I stated it was possible the market could fall to between 6480 and 6300 points, although it now appears this fall was delayed given that I expected it would occur about November 1. I now expect the market will find support and rise briefly over the next one or two weeks before falling away to between 6200 points and 6020 points by late December or January.

I don’t believe there is much to be concerned about right now, as the market is simply making its normal adjustment before the next run up.