Recently shares of Cebu Air plunged 38% in just a few minutes of trading.
So what caused the price to crash? If you’re thinking it was because a plane went down, nope, it wasn’t that. In fact, it had nothing to do with the airline’s business.
Instead, it was a mistake by a trader. The dreaded “fat finger” trade.
The massive sell order came during the final few minutes of trading on Philippine’s stock exchange. This was during the “no cancel” period so there was no turning back.
Folks who were quick enough to spot the error jumped in and quickly made a bundle, but it didn’t last long. The next day, shares of Cebu Air jumped 50%, and it all happened thanks to a trader who made a boo-boo.
I wish I could say these types of events never happen, but they do. It’s rare but markets don’t always work perfectly. If a trader places an error, the market for a small stock can be slammed hard.
More than twenty years ago, the French market was thrown into complete chaos for a few minutes. Some folks thought the president had been shot.
It turns out—I’m not making this up—a trader had rested his elbow on the F12 key. That caused a fury of sell orders to pile on the market within a few seconds. Mayhem ensued.
Soon enough, order was restored but it’s unnerving that this can happen so easily.
The other lesson is to focus on stocks that are strong and stable. Mind you, this isn’t a perfect solution, but you know that if you own high-quality stocks, you can sleep better at night.
There are a few lessons here. One is to be wary of stop orders. If things go kablooey, you can be stopped out of good stocks just because everyone else freaked out for a few minutes. You think you’re protecting yourself, but Instead, you may be making yourself very vulnerable to a single day’s chaos.
How do you find high-quality stocks? A good place to start is by looking at their dividend record.
A perfect example is Kimberly-Clark (KMB). I predict that sometime next year Kimberly-Clark will raise its dividend. OK, this isn’t a very brave forecast for me. The reason is that KMB has already raised its dividend every year for the last 47 years. Predicting #48 ain’t that big a deal.
These are the kinds of predictions I favor. Successful investing isn’t about being a swami that can see the futures. Instead, it’s about making rational decisions based on the market you currently have. Kimberly-Clark makes money is good years and bad.
What I also find fascinating about Kimberly-Clark is that they’ve made an amazing business out of making everyday stuff that people need. This is hardly some high-tech start that makes some incomprehensible.
Instead, KMB is in the business of things like tissues, diapers and paper towels. They make Kleenex. It’s usually a good sign for a business when people use the brand name as the generic name for the product.
Not surprisingly, Kimberly-Clark has richly rewarded investors over the years. Since 1985, shares of KMB are up more than 125-fold. That’s enough to turn $8,000 into $1 million, and it’s far better than most hedge funds. (I read recently that there are far more hedge funds than there are Taco Bells. I can believe it!)
This has been an especially good time for KMB. Since October, the shares are up close to 40%. In April, KMB released a very strong earnings report. The company earned $1.66 per share which beat the consensus on Wall Street by 12 cents per share.
Kimberly-Clark currently pays out a quarterly dividend of $1.03 per share. The company safely earns more than that each quarter. Annualized, the dividend comes to $4.12 per share. Going by KMB’s recent price, that works out to a dividend yield of about 3%. That’s more than you can currently get from a 30-year Treasury.
Kimberly-Clark is due to report fiscal Q2 earnings on July 23. I think KMB can “beat the Street” again. The consensus among Wall Street analysts is for KMB to report earnings of $1.61 per share.
And beware of any fat fingers!
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