History has demonstrated that investors, in their efforts to gain better returns, usually end up riding the investment merry-go-round. Every year we see advertisements from various managed funds espousing ‘fund manager of the year’ or claims that their performance is better in comparison to other funds. Obviously the objective is to attract funds from investors who perceive that their current investments are underperforming.

While positive returns always make for a good sales pitch, what investors fail to consider is that the high returns occurred in the past and only those who have already invested in the fund will receive these returns. It is a well known fact that the top managed fund in any one year rarely appears in the top listing the following year. So rather than ride the investment merry-go-round chasing short term returns, investors would be better off taking a medium to long term perspective on their investments.

So what can we expect in the market?

Last week I stated that I expected the market to peak in the second half of this week or early next week before falling away again. This week the market peaked on Monday 19 May, which was a few days earlier than expected, with the resulting fall occurring over the past three days.

The good news is that while the market fell 80 points yesterday, it rallied strongly to close 4 points higher than it opened. This indicates that the market is now more resilient and that the current down move will be short lived. I expect the market to continue to move down early next week before it turns and the bull-run resumes.

Dale Gillham
Chief Analyst
Wealth Within

If we review this week’s budget announcements, it is quite obvious that the government has taken of a cautious approach to managing the economy and in my opinion I don’t believe it adequately addresses the issues needed to curb inflation. Given this, the prospect that interest rates will fall in the coming year is very slim instead I think we will see interest rates rise.

As a society, we have been borrowing to excess for years without consideration for the consequences and many are now paying the price. There is an old saying that cash is king, and in times such as now I would strongly recommend to people who are highly leveraged to start using the extra cash they receive in future from this weeks budget announcements to dramatically reduce their negative debt. For those who are already cashed up, the next year or two will present some great opportunities in both the share and property market.

So what can we expect in the market?

The probability that the 4 year low occurred on the All Ordinaries Index on 17 March is now very high, which if correct means we can expect the current bull market to rise for at least 6 to 8 months although I believe it will last well into next year before we see any major pull back. As a fund manager I am still being a little conservative given that we have plenty of time to profit from the next bull run.

In the short term, you will remember I indicated in my previous report that the current rise will last until around 26 May before finding some resistance. I still expect this to occur with the market likely to peak in the second half of next week or early the following week before falling away again. However, I am confident that the fall will only be short in both time and price, and once it is confirmed it will present some great opportunities to purchase shares at better pricing.

Dale Gillham
Chief Analyst
Wealth Within

MyBlogLog

Over the past few months Contracts for Difference (CFDs) have come under fire from all angles including the regulators with ASIC recently claiming that they are “much riskier than a flutter on the horses or a night at the casino”. While I would agree that there is a risk in trading CFDs given that it is a highly leveraged instrument, I disagree with the statement made by ASIC.

All leveraged products, including options, warrants, futures and CFDs increase your risk in trading the market and each of these products has left a trail of uneducated traders and investors who have lost money. That said I do not believe the product itself is gambling, rather it is the ignorant and uneducated individual who trades this product that is the gambler. To trade a leveraged product with little or no knowledge is, in my book, gambling, therefore individuals should expect to loose as they would in a casino. As I always say, knowledge is power and gaining the correct knowledge to trade this instrument will minimise a trader’s risk.

So what can we expect in the market?

On Wednesday the Dow Jones traded down 196 points with price fluctuating during the day over 341 points. Given the volatility in recent months, you would expect that this sort of move would send our market spiraling down but instead the market rose to close 43 points up for the day. This move potentially signals that the negative sentiment in our market has eased and that the buyers are gaining confidence.

Given this strong sign I expect the All Ordinaries to continue to rise until around 26th May before finding some resistance. As I emphasised last week, it is wise to take a staged approach to building your portfolio at this point in time and to focus on quality rather than quantity, therefore I recommend sticking to the big blue chip shares.

Investors in Telstra 3 will have to decide this month if they will pay the final installment of $1.60 per share. Given that investors have already paid $2.00 for the first installment, the second installment due by 29 May will bring the total investment to $3.60. The question, however, is should investors pay the second installment or take their money and run?

Currently T3 shares are trading at $3.02 and based on an initial purchase price of $2.00 this represents a gain of 66.26% excluding dividends. When the second installment is paid the T3 shares convert to ordinary Telstra shares which are currently trading at $4.62, therefore the investors profit in T3 will drop to around 28.33% excluding dividends.

Given that investors may be sitting on some tax losses due to the recent market pull back, it may be wise tax planning for investors to realise their profits in T3 to offset these losses. Of course investors also need to take into account the effect of receiving the bonus offer of 1 extra share for every 25 T3 shares held if you pay the second installment.

These bonus shares will add 4% to the investment which may or may not be worth receiving depending on the individual’s tax position. My advice, if you hold T3 shares, is to pay a visit to your accountant now rather than wait until the last minute as it may prove very worthwhile.    

So what can we expect in the market?

For the regular readers of this report, you will remember I indicated in my report of 11 April that for the market to be bullish it needed to rise above 5697 in the next one to two weeks, which it did on 23 April rising to 5712 points. Over the next 5 trading days the market pulled back from this level leaving the 23 of April as the only day in which the All Ordinaries Index closed above the level predicted.

The positive news is that even though the market found resistance at this level, it has not fallen away but instead traded sideways. This suggests that the recent bearish sentiment in our market is abating and that the bulls are gaining momentum. Given this, I expect in the next few days to see the market move through this level again and for it to continue rising over the next month.   

While it is likely this will present an opportunity to enter a number of the larger blue chip stocks, I would strongly suggest that any entry be a staged approach rather than placing all your investment capital in the market at once.

Dale Gillham
Chief Analyst
Wealth Within

This week it was announced that CHARTWELL Enterprises had joined the list of investment companies that have gone into administration in the past year. While it appears that corporate greed is a major contributor to the company’s downfall, whether there is any legal action taken against Chartwell either by ASIC or clients is yet to be determined.

What concerns me is that investors are failing to learn from the past given that we hear the same stories every decade. Any company promoting returns of 70% p.a. needs serious investigation by prospective investors simply because high returns normally means high risk. As with any good investment strategy however, it is important to diversify your assets and to never place all your eggs in one basket. While every asset carries risk, it is important that investors educate themselves to ensure they understand the level of risk they are taking before they invest. 
      
So what can we expect in the market?

Last week I indicated that for the market to be bullish, it needed to rise above 5697 in the next one to two weeks, which it did yesterday (23 April) rising to 5712 points to confirm the market is bullish in the short term.

While this is a positive sign, investors need to be careful in selecting the right shares if they decide to enter the market because even though many of the top shares are starting to look good, just as many are still looking quite weak. Furthermore, many of the stocks that are rising right now are trading on lower volumes, which suggest that the institutional investors, who contribute to around 80% of our markets liquidity, are still being conservative.

Given this, it is possible that the current rise is a false move and that the market could fall away if more bad news arises. Right now it still pays to be patient and any decision to enter the market should be taken in small increments.      

Dale Gillham
Chief Analyst
Wealth Within