nztx, you present a valid argument. Let's investigate what gains were available from that dark end of March 2020 Covid-19 shock date.
Late March Low Share Price 26th July (includes dividends) Gain from late March Low Westpac $14.50 $19.05 + 0c +31% Heartland Group Holdings $0.93 $1.32 + 0c +39% Turners Automotive Group $1.12 $2.27 + 6c +108% Geneva Finance $0.35 $0.425 + 1.5c x0.7 +24%
Given what has happened in Australia with the new Victorian lock down (I expect the WBC price to be negatively influenced by that), I am surprised at how similar the bounce back by Westpac and Heartland has been. I am also surprised at how relatively small (in terms of a potential percentage share price gain) the opportunity has been to gain from Geneva Finance in the same circumstances. Squinting at the chart it looks like around 20,000 GFL shares were traded on that low day.
20,000 x 0.35 = $7000 worth of shares traded
That isn't much value to grab for all those charting opportunists, or even existing loyal shareholders out there. Low liquidity shares can often make nonsense of charts and the apparent opportunities they present for this reason.
The big surprise to me was how low Turners Automotive Group dived relative to the others. They may have been caught out by their name when car sales ground to a near halt. Although even in the darkest month Turners made some hay by selling to essential workers! As most existing shareholders know, Turners is really a finance company with an automotive sales feeder arm. Just because there are next to no automotive sales in a month, that doesn't mean that all the finance contracts signed over the previous few years come to a halt. I think the market overlooked that. Looking backwards, forcing people to stay at home may have meant that some dodgy car loans were in fact repaid because there just weren't alternative ways available to squander cash.
There is another wider issue with buying finance companies in a crisis. Generally the only way out of trouble is for finance companies in a deep recession is to issue new capital. And that means issuing new shares at a discount to the market price. That means that the thinking person buying at the bottom would be doing so knowing that they would likely be asked to stump up even more cash in a share issue at an even more discounted price. But how much new capital? At the depths of a crisis it wold be very difficult to put a number on that. For this reason, I would not be prepared to buy into a finance company in a crisis until i got a very clear signal from management as to how it was being affected and how much new capital, if any, was going to be required. Yet obviously there are some out there who consider ' buying at at shock low' as a risk worth taking.
SNOOPY
discl: who nevertheless bought some Heartland at $1.10 on 17th March on the way down on the hunch that the price fall was an over-reaction, before the full extent of the financial crisis was apparent. By my own definition I wasn't thinking clearly and with hindsight I just got lucky! Although I was at the time , and am now, prepared to support a cash issue if Heartland wants to square up their books.