Should You Buy AGL Energy Ltd At This Share Price?

What to do with AGL shares?

Yes, AGL Energy Ltd [ASX:AGL] has found its way back to my portfolio in recent weeks. Today, the market continued to be hammered after the US and European markets booked heavy losses.

The problem is right where AGL is situated — the energy market. The oil price has broken through the psychologically important $40 mark, and is headed for a lower level.

This was no doubt a traumatising event for the market. Despite strong demand and decreasing rig counts, the market is very bearish.

As I looked through the previous periods of poor market performance, I immediately concluded that we are in the middle of a market slowdown.

In my own hypothetical portfolio, the longest period of drawdown lasted for up to more than 25 weeks. Right now, the current drawdown has only been going for about six weeks.

Needless to say, we could be going for a steeper and longer slowdown in the markets.

For investors, it comes down to this. It is very hard to make a profit when the whole market is heading downward. Because the probability of picking out winning trades in a bearish market is much harder than in a bull market.

It means your portfolio is going to experience some setbacks.

You need to make sure that you have sufficient reserve set aside to combat the erosion effect of the losses. And only withdraw from the market if your portfolio has reached a quantifiable level of significant drawdown.

I know it is tempting to the leave the market when things are going bad, but that decision is best made quantitatively.

AGL remains a strong stock, therefore I am holding onto it. But it will not be immune to the market slowdown.

Ken Wangdong
Emerging Market Analyst, New Frontier Investor

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