Market Report 22 September 2009
I have said it before and I will say it again, for the life of me I cannot understand why anyone would want to own Telstra, it just does not make good investment sense. The government doesn’t want it, that’s why they sold it, and recently the Future Fund sold out its holdings in this company.
So why do investors continue to hold onto Telstra? Many say because it pays a good dividend, but this is simply an excuse to justify why they didn’t sell out earlier. There are many other good stocks on our market that pay solid dividends, and contrary to Telstra have actually risen in price over the years. It takes a lot of dividends to recoup from a fall of over 60 per cent, which Telstra has suffered over the past tens years. If you look at the real return investors received by holding onto this stock in the past 10 years, you would find most, if not all, would have been better off investing their money in a bank account.
The announcement last week that the government is forcing Telstra to break up its operations has compounded the fall in the share price, although in my opinion it is a good idea and one which may see the share price actually start to rise. That said you would have to wonder if those in charge of the Future Fund were aware of the government’s intentions given that it is less than a month since the Future Fund dumped their holdings. It seems like perfect timing if you ask me.
So what can we expect in the market?
In my last report I indicated that it was still possible the market would make one last rise before the fall into the September low. While the probability was low that this would unfold, the market defied logic rising 223 points or just under 5 per cent as at yesterday’s close (21st September).
Whilst the rising market is good for investors, what I am seeing is a false sense of security emerging from the general investing public. Many investors are now rushing into the market thinking that they are missing out on the current bull-run. Some are even borrowing money in an effort to make up for the losses they experienced over the past two years.
In my opinion these investors are taking too higher risk because as the old saying goes ‘the amateurs buy at the top while the professionals buy at the bottom’. Right now the amateurs are taking a ‘boots and all approach’ to the market, while the professionals are being more cautious, which is evidenced by the low volumes being traded on our market over the past few weeks.
I still believe the market will fall for at least two weeks, which should start to occur any time now. I am also convinced that the market will fall into November to below 3800 points. Only time will tell if I am correct, but as always protect capital by setting stop losses. Finally be patient because those who are will reap the rewards.
Until next time
Good luck and profitable trading.
Dale Gillham
Chief Analyst