The view that investing in the share market is complicated, mysterious and best left to the so-called experts who supposedly know what they are doing is a fallacy, perpetuated in part by those in the industry who stand to gain from your anxiety and ignorance. For example, positive returns always make for a good sales pitch and superannuation fund managers are currently coming out with their yearly returns.

Now depending on market conditions, fund managers will direct your attention to whatever makes them look best and so justify their existence. When the market is strong, it is usually the short term performance of the fund that is emphasised; when the market isn’t so strong however, you are often directed to look at the long term performance. Although the performance of the past 12 months by many funds may look positive, we need to remember that fund values are still way below what they were in 2007. Always remember, those in the industry are trying to sell you a product and they will use whatever marketing tactics they can to lure you in.

So what do we expect in the market?

You could be excused for thinking that the share market is like a roller coaster at the moment. Every time the market rises we then see a corresponding fall that wipes out the recent gains. This ‘ground hog day’ type performance has seen our market go nowhere in over two months, even though there have been some large moves both up and down. Eventually the direction of the market will be confirmed and a sustained move will result, and like most people I would like to see it move up. However, as mentioned last week, the market has been trading on significantly lower than normal volume, which is often a sign that the current move is unsustainable. As volumes continue to be low this week, the evidence suggests that uncertainty still reins. Given this, I still maintain that until we can determine direction it is wise to sit back and wait before buying further. 

We have come to the end of another financial year, one that proved to be among the toughest in decades for investors to pick the best performing stocks. Of the top 20 shares on the Australian market, sixteen returned a positive capital gain for the financial year, but only two have a positive return so far in 2010. What is clearly evident is that your portfolio return was severely affected by the specific selection you made. Let me explain…

If you owned ANZ and CBA throughout the financial year your capital gain would be 31.5 and 24.72 percent respectively, however, these shares were down -5.55 and -11.3 percent since January 2010. Had you selected NAB and WBC instead, your capital gain for the financial year would be just above break even, whereas, in 2010 both are in loss by 15.04 and 12.63 percent. In considering the big miners, RIO had a financial year gain of 27.7 percent, against BHP at 8.44 percent, but they were both down by at least 11.0 percent in 2010.

This sort of volatility in returns can be seen right through our market over the past financial year and therefore portfolio performance could easily vary from being positive to negative. Given this, investor portfolio returns over the past year were very much dependant not only on what they bought and sold, but when they did it.   

So what do we expect in the market?

Again this week the Australian market has been far from impressive, with the past two weeks literally wiping out the gains since the May 2010 low. This suggests that the psychology of our market is now much more bearish than it is bullish, and therefore we need to re-asses our thinking.

You will recall how last week I explained that in a normal market prices will generally rise over four to six weeks and then fall for one or two weeks before rising again. In a bullish market this fall will generally only be a few percent, whereas, over the past eight days our market has fallen over 8.5 percent, with no real sign it is about to stop. Given this, we need to look at the possibility that the market may now fall away for a further four to six weeks to 4,000 points or below. This further highlights why I have been strongly suggesting that it is wise to set stop losses on your shares to protect capital. I am not discounting the fact that our market may find support and rise again over the next few weeks, as anything is possible in the current market conditions, but the likelihood of that occurring is now less than it was two weeks ago.  

Dale Gillham

Chief Analyst

Wealth Within

It is nearly tax time again and this is one area that many would prefer not to look at. Let’s face it - most of us do not like paying tax or to be precise, paying more tax than we need to. But when it comes to the share market many investors often lose thousands of dollars because they are told by professionals to hold onto a stock that is falling in value rather than sell and pay capital gains tax.

Whilst paying capital gains tax may be less of an issue given the impact of the GFC on many portfolios, I believe now is a perfect time to review your portfolio and clean it up, so to speak. Let me explain. It is widely publicised that we should minimise the capital gains tax impact of our investments by exiting shares that are in profit and offsetting this by exiting shares that have suffered a capital loss on or before 30 June. Often I have found that when investors clear out the deadwood in their portfolio to get a clear and fresh start, they feel much better, and more importantly their portfolio performance starts to improve. So my advice is to see your accountant now to see what you can do.   

So what do we expect in the market?

If you have been feeling like you are on a massive roller coaster ride with your portfolio in the past few months, you are not alone. Currently the All ordinaries Index is trading around August 2009 levels, but in between then and now the market has fluctuated up and down by more than 10 per cent on several occasions. To put this into context, between March 2003 and November 2007 the All Ordinaries Index had only twice fallen greater than 10 per cent, including the 11 per cent fall into June 2006 and the 15 per cent fall into August 2007, yet in the first 6 months of this year the market has fallen twice by greater than 10 per cent.  

This week the market has continued to hold above the important 4300 point level, which again increases my confidence that the low of 4194.40 on Friday 21 May was our yearly low. Given this, I still believe All Ordinaries Index has a reasonable chance of rising up to my target level of around 5200 points around late July. The only reservation I have is that it will need to get through the strong resistance around 5000 points that has turned the market twice this year, however, I believe in third time lucky.  

Over the years I have continually warned people about share market scammers, and it now seems they are back to conning people out of their hard earn money. This week I have received two emails from people who have been contacted recently by telemarketers promoting quick riches from the share market. The callers suggested that anyone could use their system, which has secret or privileged information in it. They further stated you would require no knowledge and very little time to achieve 86 percent winning trades and huge profits. Immediately, this sort of claim should ring alarm bells.

Here’s the con, they also offered a ‘today only’ deal, where the individuals could pay half of the $9,000 fee now and pay the other half after they make $20,000 in profits. The reality is they know many people will give them $4,500 and they will never receive the other portion. There are only two words I can say about these unscrupulous marketeers and neither can be put in print. My advice to anyone receiving calls similar to this is to hang up and ring ASIC or visit their website www.asic.gov.au to report them. Above all do your research before handing over any money.       

So what do we expect in the market? 

The market fell away earlier this week to test support around the 4300 point level I talked about over the past month. The good news is that this level is holding and more importantly, the strong move up by our market on Thursday increased my confidence that the low of 4194.40 points on Friday 21 May was our yearly low. 

If this is the case, then as suggested last week, I believe the All Ordinaries Index will be bullish over the next 6 to 8 weeks and rise up to my target level of around 5200 points around late July. Given this, we could reasonably expect our next low to occur sometime in August or September. Good opportunities could come from the larger stocks in the energy, media and materials sectors. A word of caution though, while I believe the market is likely to be bullish there is a high probability it will be volatile, with large swings in price both up and down. 

Since the 15th October the Australian share market has fallen nearly 8 per cent as part of the normal market cycle. What is interesting is that the longer the market moved down in time, the more fear has arisen in ordinary Australians concerned that they were about to see a repeat of what occurred into March of this year. It seems that Australians are becoming more myopic in their outlook, which is to their detriment, rather than looking at the bigger picture of where the market is heading. This attitude has stemmed from a fear of loosing, and is causing many to not only loose sleep but make poor investment choices 

Markets will always move from low to high and then make a new low before rising again because price always conforms to the averages. For example, the All Ordinaries index long term average growth is around 2.5 points per day, although at times it will rise at a faster rate. Therefore we need to expect that the market will peak and fall back to the historical average. This is also true in a falling market. Knowing this, investors would be better off stepping back and taking a broader approach to the market rather than hanging onto every move that the Dow or our market makes.  

So what can we expect in the market? 

Over the past week the market has fallen away slightly to achieve a low of 4515.3 points yesterday, which represents a fall of just less than 8 per cent. Last week I mentioned it was possible we had seen the last of the down move, although we needed to expect that the market could fall for a further one to two weeks to around 4500 points before starting to rise again. 

Given the move down this week has only been minor, and it is likely that the market will rise strongly today, it is possible that the market will close higher for the week. This would indicate that the down move is most likely over, although over the last two years the market has trained us to expect the unexpected. Given this, it is possible the market could fall slightly into next week.

That said, once the low occurs I believe the market will rise to around 5200 into January 2010 and possibly higher into February before moving into its yearly low at the end of the first quarter of 2010.