January 2008 |
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What a start to the New Year! Have we begun a bear market? Or are we looking at a bounce back up to the recent highs once the hysteria subsides? Who really knows? What I know for certain is that nobody can predict what the market will do. The ‘experts’ say it is quite probable the U.S has begun a recession, even after a gutsy move this week by the American Reserve Bank to slash interest rates further. However that seems to have done nothing for confidence in the marketplace worldwide. It’s no secret that the U.S sub prime crumble has claimed many victims. On our own soil last year we watched the highly geared Centro Group collapse, causing a widespread fallout. What IS quite surprising though is the fact that our Australian economy is still very strong at the moment, hence the looming interest rate rise for February. Why would the emerging recession in the U.S have such an impact on our financial markets? A couple of possibilities come to mind…. Fundamentals drive the market for the long term, but fear and greed drive the fluctuations for the short term. The movement of the share market is a result of human behaviour. When that behaviour is MASS and it is driven by FEAR without a doubt, we will see drastic price movements. There have been a number of reports recently about the rise in popularity of self managed superannuation funds, and a certain boom in CFD’s and other highly leveraged share trading strategies. Dangerous vehicles for amateurs to drive. High leverage can entice traders and investors with high returns, but it can also be highly risky. I have wondered if the massive dive in the All Ordinaries this week was at all impacted by margin calls, exercise of options and manipulation by some institutions. Most amateurs simply do not factor "value" into their investing decisions. If they approached share investing more from a business perspective, the situation over the past two weeks, would not have occurred to anywhere near that extent. For those of you who have attended my seminars or met me in person, you would know of my admiration for Warren Buffett and his style of value investing. His is a strategy suited to the long term for capital growth. If you are not familiar with Buffett, do a google and take notes. Honestly, this is a man who has made literally billions doing the exact opposite to everyone else. Warren ’s strategy in a nutshell, is to select a particular company for it’s strong fundamental or financial details, such as profits, expenditure and management, and buying it’s shares when everyone else is selling them. Today we are looking at a market that would have many value investors rubbing their hands together in anticipation. However, before you phone your broker and start placing buy orders, there is more to it than just that. There are technical entry rules you need to adhere to that are just as important as the stock selection in the first place. It is pointless buying a share that is still on it’s way down. More often than not, you won’t come up smelling like roses after trying to pick a bottom. I don’t believe we should be panicking, however now is the time to apply more caution. If you have been actively trading for short term gains then adhere to strict money management rules, stop losses and leave your emotions out of it. My real belief though, is that share prices will find support and even possibly start to return to previous values, however, because of the U.S economic issues, this return may be a gradual one. To your success, P.S. If you are interested in learning how to approach investing in shares the way Warren Buffett does. Click Here. We cover his strategies extensively, in our Mentoring for Success program. Jule Corporation Pty Ltd Subscribe |
