There are enough negative factors in play to suggest great caution with asset allocation in portfolios, as a wonderful run of results for investors came to an end in 2018. Here are four common factors in market collapses.
Author Archive | Ashley Owen
The history of the Big Four banks is littered with bad strategies by overpaid executives, taxpayer-funded rescues and a lack of competition. As the banks clean up the Royal Commission mess, Macquarie has overall done better.
It’s too easy to look at a long-term chart of rising share prices and be reassured about performance. But adjusted for inflation, many of our largest companies have gone nowhere in half a century.
Australian companies have a long and frustrating history of wasting billions of dollars of capital on overseas dreams, and institutional investors should be taking a harder line to protect their capital.
The Australian market again delivered strong returns in 2017-2018 with big sector differences, but there were large variations in global performance depending on the currency hedging strategy.
Investors are complacent and expect double-digit profit growth to continue for many years, but the market consensus for EPS growth is now in dangerous territory with more downside potential than upside.
After test matches resumed in 1993, Australia held the upper hand and peaked at the bottom of the GFC. In stock markets, South Africa is edging it in US$ terms but killing it in local currencies.
The Australian share market offers a dividend yield of about 4.2% at the moment, supported by franking credit of 1.5% to give an attractive 5.7%. The focus is on the refund of this credit.
In the last seven years, commodity prices and the fortunes of many Australian producers went through a boom/bust cycle and are now on a recovery rebound. It’s a volatile ride but a sector worth another look.
What is it about shares that most investors want to buy as they become more expensive, then sell when the price falls? We don’t do that with other goods. There are four main choices when reacting to a market fall.
It’s been a golden period for investing for those willing to take some risk. Australia has experienced six straight years when everything went up, and this has never happened before in history.
When it comes to company floats or IPOs, sellers know much more about the business than buyers, so before getting caught up in the euphoria of a new listing, consider what it is they know that you don’t.
The intuition is that stock markets should perform in line with an economy’s GDP, but a look at the last decade shows little relationship, and perhaps the opposite is more accurate.
We are not in the heady market conditions of 1987 at the moment, but the biggest problem facing investors will be the urge to panic sell after a major fall, similar to the desire that drives buying at the top.