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19-10-2014, 09:30 PM
(This post was last modified: 19-10-2014, 09:32 PM by greengiraffe.)
[/i]
It can take decades to become successful because you don't understand investment until you have been through the full cycle of boom and bust, then boom again.
It's not quite so easy as buying a few shares that pay a decent dividend and then just getting on with life. Unless you can watch your stockholding decline by 50 per cent without becoming panic-stricken, you should not be in the sharemarket.
[i]
Selloff a wake-up call for investors
Baker Philip Baker
706 words
18 Oct 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
Philip Baker
The sharemarket over the past two years has done a great job of making everyone a successful fund manager. It's been as easy as buying four bank stocks and Telstra and then sitting back watching the sun set. But this week investors got a wake-up call: It's not that easy.
Now is the time to follow the professionals. The problem is they probably made their first move a few months ago when they increased their cash holdings.
Back then the sharemarket wasn't on the front page and there were no screaming headlines.
But as it's their job every single day, they would have come into work, switched on their screens, looked at the prices in their portfolios, studied the valuations and determined that maybe it was time to lighten up.
Investors such as Geoff Wilson of Wilson Asset Management took his cash holding to around 46 per cent.
Peter Morgan, the former head of equities at Perpetual and founder of 452 Capital, has 70 per cent of his portfolio in cash.
A trap for the do-it-yourself investor on those quiet days when there's not a lot happening is to think that all is well with the world, my portfolio is good, those dividends are just going to keep rolling in.
Then, when there is a bolt out of the blue, the DIYers can be like the rabbits in the headlights.
So when shares slumped this week they turn out to be sellers, not buyers. The most successful stockpickers pay scant attention to the headlines of the day that scream deflation fears in Europe, higher rates in the US or a potential slowdown in China. For sure, they would know what's driving the market, but they tend to look through the noise.
Instead, they go immediately to the price of their favourite stocks and see how far they have fallen.
Then they would check on the price of any stocks they have had their eye on and see how far they have fallen.
It's tough because they are doing the opposite to what everyone else is doing. They are looking for a bargain or trying to determine if prices have fallen too far and valuations are now more appealing.
That's why investment is psychologically challenging – you have got to sell when everyone is exuberant, and that's hard.Stocks might get cheaper
And then you have got to buy when the headlines are screaming correction and billions have been wiped off the sharemarket.
Think of the days when shares go up, does the headline ever say billions have been added to the sharemarket?
It is hard to find people who have the right judgment to be professional fund managers. Some analysts think that despite the selloff this week stocks might get cheaper.
There has been talk on some trading desks that there's no point in buying until global bond yields rise. This week they have surprised most investors by falling as the fear of deflation takes hold.
Another key buying indicator is the US dollar. As that rises even more, it's a reflection of how well the US economy is doing. The third indicator is needing to see a substantial improvement in key European growth indicators. They have all disappointed this week with poor data from Germany causing a lot of the panic.
One thing I've learnt in 13 years of writing for The Australian Financial Review is that you can't become a smart investor in two years.
It takes much longer.
The problem that is everyone loves the quick fix, the instant gratification without the feeling of ever feeling uncomfortable or slightly uneasy.
It can take decades to become successful because you don't understand investment until you have been through the full cycle of boom and bust, then boom again.
It's not quite so easy as buying a few shares that pay a decent dividend and then just getting on with life. Unless you can watch your stockholding decline by 50 per cent without becoming panic-stricken, you should not be in the sharemarket.
Fairfax Media Management Pty Limited
Document AFNR000020141017eaai0001o
It can take decades to become successful because you don't understand investment until you have been through the full cycle of boom and bust, then boom again.
It's not quite so easy as buying a few shares that pay a decent dividend and then just getting on with life. Unless you can watch your stockholding decline by 50 per cent without becoming panic-stricken, you should not be in the sharemarket.
[i]
Selloff a wake-up call for investors
Baker Philip Baker
706 words
18 Oct 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
Philip Baker
The sharemarket over the past two years has done a great job of making everyone a successful fund manager. It's been as easy as buying four bank stocks and Telstra and then sitting back watching the sun set. But this week investors got a wake-up call: It's not that easy.
Now is the time to follow the professionals. The problem is they probably made their first move a few months ago when they increased their cash holdings.
Back then the sharemarket wasn't on the front page and there were no screaming headlines.
But as it's their job every single day, they would have come into work, switched on their screens, looked at the prices in their portfolios, studied the valuations and determined that maybe it was time to lighten up.
Investors such as Geoff Wilson of Wilson Asset Management took his cash holding to around 46 per cent.
Peter Morgan, the former head of equities at Perpetual and founder of 452 Capital, has 70 per cent of his portfolio in cash.
A trap for the do-it-yourself investor on those quiet days when there's not a lot happening is to think that all is well with the world, my portfolio is good, those dividends are just going to keep rolling in.
Then, when there is a bolt out of the blue, the DIYers can be like the rabbits in the headlights.
So when shares slumped this week they turn out to be sellers, not buyers. The most successful stockpickers pay scant attention to the headlines of the day that scream deflation fears in Europe, higher rates in the US or a potential slowdown in China. For sure, they would know what's driving the market, but they tend to look through the noise.
Instead, they go immediately to the price of their favourite stocks and see how far they have fallen.
Then they would check on the price of any stocks they have had their eye on and see how far they have fallen.
It's tough because they are doing the opposite to what everyone else is doing. They are looking for a bargain or trying to determine if prices have fallen too far and valuations are now more appealing.
That's why investment is psychologically challenging – you have got to sell when everyone is exuberant, and that's hard.Stocks might get cheaper
And then you have got to buy when the headlines are screaming correction and billions have been wiped off the sharemarket.
Think of the days when shares go up, does the headline ever say billions have been added to the sharemarket?
It is hard to find people who have the right judgment to be professional fund managers. Some analysts think that despite the selloff this week stocks might get cheaper.
There has been talk on some trading desks that there's no point in buying until global bond yields rise. This week they have surprised most investors by falling as the fear of deflation takes hold.
Another key buying indicator is the US dollar. As that rises even more, it's a reflection of how well the US economy is doing. The third indicator is needing to see a substantial improvement in key European growth indicators. They have all disappointed this week with poor data from Germany causing a lot of the panic.
One thing I've learnt in 13 years of writing for The Australian Financial Review is that you can't become a smart investor in two years.
It takes much longer.
The problem that is everyone loves the quick fix, the instant gratification without the feeling of ever feeling uncomfortable or slightly uneasy.
It can take decades to become successful because you don't understand investment until you have been through the full cycle of boom and bust, then boom again.
It's not quite so easy as buying a few shares that pay a decent dividend and then just getting on with life. Unless you can watch your stockholding decline by 50 per cent without becoming panic-stricken, you should not be in the sharemarket.
Fairfax Media Management Pty Limited
Document AFNR000020141017eaai0001o
