Wealth Within - All Ords Report 20 September 2011
In times of uncertainty, when share markets around the globe fall, investors often seek bargains looking to buy cheap stocks for their portfolio. But how cheap is cheap and are investors making wise choices or simply flirting with danger and therefore increasing their risk?
Often when stocks fall 10, 20 or even 50% or more, investors instantly see a bargain waiting to profit from. In their mind, they justify that the stock is worth what it was prior to its fall, and as such should return to that level once everyone else catches onto the perceived bargain. However, what investors often fail to see is that just as stocks are over sold to price levels way below their real value, they are also over bought to levels way above their real value. Given this, a fall in the stock's price may just be that it is reverting to its real value, and as such investors are paying a fair price rather than getting a bargain.
All too often investors mistakenly buy stocks that are still falling or during a brief pause in the fall only to see their bargain become cheaper. Let's face it no one rings a bell to tell you that a stock has hit its lowest price, and as such the key to successful investing is to only buy shares that are rising in value. While you might pay slightly more, your risk is significantly reduced
What do we expect in the market?
The All Ordinaries Index has continued to be volatile over the past two weeks with the market experiencing both strong rises and falls. In saying that the bears have been winning the tug-of-war which has resulted in the market trading to its lowest point since 8 August and in so doing it has broken below some important support levels.
Right now, every time the market falls it does so at nearly twice the speed of its previous rise, which indicates that the bears are more motivated than the bulls, and I would expect this to continue at least in the very short term. It also suggests that the low of 3829 points on 8 August may be challenged in the very near future. A word of caution for traders is that false triggers may be evident until the volatility settles down.
That said the news is not all bad as I believe the current fall will come to an end in the next two or possibly three weeks, after which I expect the market to rise for a period of around eight weeks or at least until Christmas. Right now I believe investors should be getting ready to take advantage of the impending rise, rather than chasing interest from term deposits as dividends are getting better by the day and the extra one or two percent you may get in interest over one or two years will pail into insignificance when the market turns.
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Dale Gillham
Chief Analyst
Wealth Within
