Upfront Investor Share Market Report 6/8/10
Friday, August 6th, 2010All too often we get caught up in short term thinking rather than focussing on the bigger picture, and this is especially so when it comes to investing. To illustrate, let’s consider what can be achieved with good shares and a little time. Put simply, had you invested one dollar in BHP shares at the start of January 1999 by 31 Jul 2010 your investment would have increased 592 per cent. During the same period other top 20 shares like CSL grew 599 per cent, Woodside Petroleum 473 per cent and Woolworths experienced a gain of 386 per cent. These figures are only for capital growth, and therefore dividends received or re-invested would have increased these returns. Of course not all shares are suited to a buy and hold over the longer term. The same dollar invested in Telstra experienced a loss of 57 percent, and 60 percent with AMP, not including dividends.
The key to investing or trading the share market is not to look for the next big thing or to find a new way of trading or even trying to pick the short term moves. With over four hundred years of world share market history to guide us, one thing we know with certainty is that nothing has changed in terms of the mechanics of markets. People continue to react to information and therefore the market will always do what it does. Regardless of how smart we think we are or how much new technology we have the other thing we can learn from the 400 years of market history is that we do not learn from mistakes.
So what do we expect in the market?
You could be forgiven if you are thinking that the movements in our market are very much like driving your car with the handbrake on. You know something is wrong but you just can’t figure out what. Our market is trading at just below 4,600 points, which is the same level it was three months ago despite having two strong moves of 10 per cent plus and two nine per cent plus moves. The problem is that only half of those moves were up. Whilst this is exciting for short term traders, the same cannot be said for medium to longer term investors.
The longer this volatility goes on the more likely it is for the Australian share market to move down over the next few weeks. If the market fails to continue the current rise we could see it fall to below 4,200 points and possibly to 4,000 points. I would expect that a move down would be short and sharp with the eventual low occurring between 20 August and mid September 2010. Given this, it might be wise to take a cautious approach to investing until we can confirm which way the market is moving.


