Greek Stocks - Why You Shouldn't Consider Buying This Crisis
Stock-Markets / European Stock Markets Jul 14, 2015 - 07:56 AM GMTBy: DailyWealth
Brett Eversole writes: Greece's crisis has been underway for months. But the most extreme event happened two weeks ago... Greek stocks fell 19% on June 29.
That's the largest one-day fall we've ever seen in Greek stocks.
Buying after this crash might seem like a good idea. Most investors know it's usually good to "buy when there's blood in the streets."
But while Greece's stock market is bloody today, it's not a place you should be buying. This is a crisis you should avoid.
Let me explain...
As you've likely heard, Greece is broke. To avoid defaulting on its payments, the country needs to borrow more money.
But a little over two weeks ago, Greece's negotiations with its creditors broke down. To keep depositors and investors from fleeing, the Greek government shut down the country's banks and stock market.
The stock market has been closed for the past two weeks. But that hasn't stopped trading of the major Greek exchange-traded fund (ETF) here in the U.S. On June 29, the Global X FTSE Greece 20 Fund (GREK) fell 19%.
While this isn't a perfect representation of the Greek market, it's darn close. And that 19% fall is larger than any one-day fall we've ever seen in the 28-year history of Greece's benchmark index – the Athens Stock Exchange (ASE) Index.
In fact, the ASE Index has only fallen 10%-plus in a single day five other times in history. The largest drop occurred in December 1987... with a one-day fall of 15%.
You might think that buying after a massive one-day crash would be a good idea. But history says that's a risky move, at best...
As you can see, the returns are all over the place. Greek stocks saw gains as high as 54% three months after a 10% one-day crash. But they also saw losses of as much as 28% a month after a similar crash.
When you look at median returns, buying after a Greek stock market crash leads to losses... no matter the timeframe. Any way you cut it, buying after Greece's crash is risky... and likely a losing proposition.
Of course, we can't know how Greece's economic crisis will end.
Could things turn around? Sure.
Greece could get its bailout. And when the Greek stock market opens, it could see large gains. But this is a risky bet.
There's certainly blood in the streets... But history says this is a crisis you're better off avoiding.
Good investing,
Brett Eversole
The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.
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