The Old Switcheroo - The Hyperion Effect

I knew it was coming, as predictable as night follows day, I knew that after the National Australia Bank released some less than exciting write downs which resulted in a large fall in their share price that it was only a matter of time before we started getting calls for the old switcheroo. Not sure what I’m talking about? Well I am being somewhat flippant about it but I am referring to the Switch recommendation that many in the market will ‘come up with’ after  a company produces some bad results.

It happens on reasonably regular occasions here in Australia with our Big 4 banks because more often than not because one of them is having a hard time and their share price has fallen.

When this happens many out their recommend that you switch from the bank that has underperformed into one of the others that has better ‘growth’ prospects. Out of random chance The Wedding Singer (the movie with Adam Sandler and Drew Barrymore) happened to be on the other night and I was watching the scene where he was talking to his fiance who had just stood him up at the alter in front of all his friends and family. After she had given him the spiel about why she couldn’t marry him he looks at her and yells

“Gee, you know that information… really wouldve been more useful to me yesterday

This (sadly some might say) made me think about the switch recommendations that we are talking about today. Telling people to switch out of a stock AFTER it has fallen on bad news doesn’t really make sense. Surely they should have told you to get out prior to it falling! A quick search shows that over the past 10 years the NAB has produced an average annual return of around 2.5%. This compares to the other 3 banks who have produced returns of 9%, 11% and 14%. So you could ask why is the switch being recommended now, after its price has fallen when the other three appear to have had ‘better growth’ prospects for a long time.

The reality, and our message is as always, that timing the market is impossible and trying to pick which stocks to be in at the right time, or which stocks NOT to be in, is fraught with danger and very rarely a successful strategy.

So the next time you get a call about switching out of one of your stocks that has just fallen on some bad news remember to ask the first question……”Why didn’t you tell me this before its share price fell”


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