Are we there yet?

Replies to This Discussion

Permalink Reply by Miffy on July 4, 2008 at 12:45

Ah, it all depends on what you're looking to buy. I was just chatting to Joe about this:

"Good to hear you're on track Joe. Don't let the sharemarket throw your plans off track - I know people who have got themselves in trouble when everything seemed to be going well.

I've always been intrigued about the sharemarket, how prices can fluctuate so wildly when not much has changed from one day to the next. I think it is a heightened forum for all our greed and fear, with the herd ruling supreme. Everything can seem ok with the herd trotting along together until all of a sudden a group bolts in one direction because they think they've seen a lion (bear) or food (bull). The rest follow blindly because they don't have time to check for themselves.

You're right though - things do seem cheap, given they're 20% down from 6 months ago. China doesn't seem to be stopping in a hurry, so resources are probably going to keep going, but from all accounts the banking and retail sectors are to be steered clear of..."

Unless you're trading full-time, it's pretty dangerous to try and pick the bottom (or top). It's a long-term game, so you really need to be looking out 5-10 years ahead and build a portfolio that can weather a storm. I'm no expert, but I think there's more trouble ahead for the market. There's a bear in there.

I read a couple of good articles from on CompareShares over the last year that may be of interest, whether you've got an existing portfolio or looking to start out:

6 Defensive Stocks that can Weather the Storm

Stock Lab: Is your share portfolio a dud?

Starting a share portfolio from scratch

Miffy

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Permalink Reply by JG on July 4, 2008 at 15:21

Sure quality is its own reward, but like you say the mood of the market determines the direction of the herd.

Buying into the best company in the world doesn't help your portfolio if you buy in halfway down a slide (although if you hang on you should still do well in the recovery).

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Permalink Reply by Joe on July 5, 2008 at 13:47

JG,

Nobody can predict the bottom. It may seem like we are at the bottom but who knows what the future will bring. As Miffy said a good portfolio can withstand these ups and downs. One should look at the investment long term( 5 years from now at least) and then buy. If you beleive BHP is a good investment and you buy 1000 share today at a price of $41, it should not matter that the share is in a slide from $47 to $37. You don't know that now. You will only know it was in a slide after it has already happened.For all you know after you buy in at $41, the share may start going upwards and keeps on going up for the next 5 years.

I would say that picking the bottom is for traders and long term investors should focus on the fundamentals of the company . They should invest for the long term.

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Permalink Reply by JG on July 5, 2008 at 13:54

agreed,

but sometime around now would appear to be a particularly auspicious time to start investing...

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Permalink Reply by Miffy on July 5, 2008 at 14:19

I'm not so sure about that JG. With cash rates relatively high right now (over 8.00%!), the beginner investor would probably be better off sitting on the sidelines in cash until things settle further. If you can be assured of 8% in cash, why take the risk on shares in a wobbly market?

There's nothing worse than starting out in investing and buying "cheap" stocks (whatever that means) only to see your investments head south.

Things are pretty rough globally and it's by no means a given that we're at the end of it - the US is in recession, inflation is getting out of control globally, the Australian economy is starting to creak and China may well have the post-Olympic blues - which would send global markets in a spin.

I reckon the best time for those starting out to get involved in investing is when the mood is buoyant on the stockmarket, when it's in the midst of a bull run. We're far from that right now, so I think it's best to sit and watch.

If you're thinking about investing, take your time, do some research and figure out what options are available to you. Investing is something you won't stop doing after you start, so it's best to take it easy at the beginning and protect your pile of dough. Particularly in times like this.

This article on FatCat is a great read as it looks into why we invest the way we do:

Do you have a profitable personality

Miffy

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Permalink Reply by JG on July 5, 2008 at 15:20

You'd prefer to buy in after irrational exuberance has taken hold?

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Permalink Reply by Miffy on July 5, 2008 at 19:49

I'm really referring to what I believe beginner investors should look out for, and that's a bad first experience.

[That said, there's nothing like getting on while there's a bit of irrational exuberance to make a bit of money ;) you've just got to get out before it all wears off and reality kicks in. Which it has now.]

Seriously though, investing for the first time should never be taken lightly as one bad experience can taint your investment decisions forever more.

With things the way they are right now, I don't think the sharemarket is the place for those starting out. Not unless they're content to put together a portfolio and not watch the sharemarket, which I personally think has some way to fall.

Whatever happens, at the moment it's highly unlikely for the sharemarket to exceed the return you can get on cash by a sufficient amount to make it worthwhile to take on the risk (and stress) that a beginner investor will feel.

Slow and steady is the best approach for most people who in reality are unlikely to really actively manage their investment portfolios. I can't recommend enough that you read and research as much as possible before you jump into any form of investment for the first time.

I'm sure many people have stories about how they lost money on an investment because they hadn't done any research at all, or only cast a cursory glance over it before plunging in with their hard earned cash; yet the same people probably agonised for weeks or months over the colour they were going to paint the spare bedroom, or whether they should buy the $50 cutlery set or the $100 one.

The confessions of members here shows how easy it is to come unstuck, and that it's a long road back again. So please, be careful when you start out.

Think about whether you can afford to lose 50% of your investment, because this is certainly possible on the market (depending on the shares that make up your portfolio) in the current climate. Remember, you need a 100% gain to make up for a 50% loss ($100,000 down to $50,000 = 50% loss, $50,000 back to $100,000 is a 100% gain.)

I know I'm sounding a bit grim here, and investing in shares certainly isn't to be sneezed at because over the long term you can make fantastic gains (around 15% per annum), but you need to go in with your eyes wide open when you're starting out.

Miffy.

Miffy

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Permalink Reply by JG on July 5, 2008 at 23:04

Got to remember with cash that while your principal is safe the interest rate can change on a weekly basis (unless you're getting into a term deposit)

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Permalink Reply by Miffy on July 6, 2008 at 12:27

Term Deposits: 8.25% for 6 months at Raboplus, 8.00% for one year, 7.70% for 2 years.

Mind you one thing I neglected to mention is that there is a difference between how you're taxed on what you get on cash - which is income - and what you get on shares - which is capital gain (apart from dividends, which is income). This is less relevant for someone on a lower taxable income - which is likely if you're just starting out investing - than someone on a higher tax bracket, but relevant nonetheless.

Miffy

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Permalink Reply by JG on July 6, 2008 at 15:48

Well a term deposit's a different beast with the lock in.

And if the banks were all that safe they wouldn't be offering all that interest...

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Permalink Reply by Miffy on July 6, 2008 at 17:12

So, let me get this straight - you think that "locking in" to 8.25% for 6 months is a bad thing for beginner investors - which is what I'm referring to (and BTW, you can actually get your funds although you are penalised) , AND the banks in Australia are going to collapse.

Why do you think that banks in Australia are unsafe? And what link do you think there is between high interest rates on cash deposits and banks being less safe?

Happy to discuss matters, but you really need to put forward a valid argument as to why you think something banks are unsafe or term deposits aren't appropriate for beginner investors in a shaky market.

Miffy

Permalink Reply by Kylie on July 5, 2008 at 14:20

I agree, I bought some stocks for the super fund when a lot were hitting a 62% fib, they have continued to drop a bit in price, but I'll be patient. sometimes other supports are stronger, I just have to wait for others to think they are cheap.

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