What all sportspeople who have gone beyond the beginner ranks (if there actually are any professional sports by the way) have in common? also knows how emotions can swing in a game. Over the course of a couple of hours, the mood swings from optimism, when your team pulls ahead early, to frustration, as the opposition draws level, to elation, as you score one again, to horror and aggression, as the other team seizes control.
It is the same with investing in a volatile market. A 30% drop could trigger fears of ever-increasing losses even a re-evaluation of future plans and prompt some investors to sell in panic. Then a 20% recovery sparks optimism and FOMO and jumping back in, hoping for a further increase. This down 30% up 20% is the real experience for millions of investors in 2022. Now everyone in town has an opinion on whether we’ve hit bottom.
One of the best-known investment adages is attributed to Sir John Templeton:
“Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”
“The bull market died after the post-pandemic euphoria at the end of 2021 and the carcass was rooting for six months, but we’ve had a very strong recovery since the middle of June. If you are looking for a guide for predicting if a new bull is storming out of its pen, keep your eye on the most recent JP Morgan chart of returns over the last 20 years across asset classes. It shows that equities and REITs were the place to be, so there are obviously people eager to get into the stock market. But look at the orange bar. The ‘average investor’ earned terrible returns, buying at the wrong time and selling at the wrong time, on “euphoria” and “pessimism”.
Markets can be equally perverse in the opposite direction: When they are bad bad news on inflation and interest rates, wars, pandemics stocks can rise when it turns out that the situation is not quite as bad as people had thought. Look at how the market has reacted to the U.S. CPI falling from 9.1 percent to 8.6 percent in July. News articles were rapidly authored on how inflation had peaked and it was off to the races.
Not so fast. Campbell Harvey, Research Affiliates in the US-headquartered head of research, produced an interesting 10-minute video on the inflation view after the release of the July inflation figure. Harvey notes that US CPI is conditional on the size of the monthly number rolling off the annual statistic. It turns out that you can see this here: 0.48 percent dropped out and 0.01 came in, which is what made for the optimistic fall in inflation. But at the same time, you had another 0.02% decline, and then another, all the way into 2022, when you would finally fall to 5.942 million in September of that year. Even if inflation is an incredibly optimistic 3% a year, or 0.25% a month, from here, the reported CPI will remain near 7.5% to 8.5% for the rest of 2022. This is back when markets are surging because inflation is poised to turn down in a hurry. Harvey makes other good points about the lag effect of the cost of ‘dwelling’ that makes up 32 per cent of the CPI, in which we haven’t seen the full extent of big rental increases.
So in a period when thousands of Australians retire each week, billions of dollars are soon going to be passed between generations and the youngest Baby Boomer is old enough to draw a pension, surely the demand for financial advice is at an all-time high. Up to 3.6m Australians are expected to retire in the decade ahead. The state of financial advice is a maze of complicated problems and we examine why thousands of advisers have exited the industry.
ANZ Bank is the latest set of pessimists to predict house price falls of the order of 20%, with Sydney down 14% in 2022 and a further 6% in 2023. They forecast a 6% rebound in 2024 as rates fall. Dr Sam Wylie from the Melbourne Business School and University of Melbourne examines the resilience of housing in the past and questions whether such extremes are feasible. Also giving some backing to Sam’s view is that national average rents are up up 14 per cent in the past 12 months, according to property researchers SQM. This is bringing investors back into the markets. And immigration is likely to bounce back quickly to pre-pandemic levels as thousands of new buyers flood in.
On a podcast, Investing Compass, reached its 100th edition this week, and one of the two presenters is Shani Jayamanne, who was this week joined by Mark LaMonica. While her investment expertise may make her a good candidate for putting her super in an SMSF one day, she explains why she’s not ready right now (and you may not be, either). SMSFs remain popular, with one in three establishments over the past year created by those under 45. Now, these young investors are the prey of the brokers and wealth platforms.
There can be only one Warren Buffett (two, if Charlie Munger counts as Warren Buffett), and relatively few people can be great investors, but we can all learn to not be bad investors. Vanguard’s Robin Bowerman uses charts to back some key lessons for investors.
Private equity is gaining in prominence in the global sphere, not least after takeovers of Sydney Airport, Spark Infrastructure and AusNet. Private equity, by contrast, enjoys the benefit of avoiding the scrutiny of public markets and tens of thousands of analysts and investors, and is able to take a longer-term view in constructing the business. Chris Demasi Ophir Are listed markets just like the privateers?
There have been a number of too and fro reports in the media lately about various aspects of gender inequality; that we’re making progress on closing the gender pay gap, on the number of women sitting on listed company boards and on reducing the proportion of poorly paid or unpaid female work. Yet ATO figures still reveal major holes in superannuation, and several indicators in Fidelity's new survey reinforce the need for improvement. Alva Devoy looks at the charts for financial independence by gender, and finds a place for financial advisers to redress the balance.
Here are three commercial property segments with solid tenants and prospects that are showing some strength, says Cuong Nguyen of PGIM. Equally, a number of listed property funds are trading at a discount to the value of the underlying assets, and this appears an attractive level for the long-term investor to start establishing positions.
The White Paper in the spotlight this week is from VanEck and focuses on the sector concentration in the Australian equities index, when combined with a small universe of stocks. Investors who are heavily exposed to Aussie stocks should take these points into account.
