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. 

[youtube]ttp://www.youtube.com/watch?v=7WZED4We_Qo[/youtube]A number of economic reports are predicting rising unemployment, lower demand and pricing for commodities, stable interest rates and a general slowing of most economic activities such as travel and transport services during the 09/10 financial year. This will obviously affect not only the share market but other investment vehicles. That said money is still being poured into superannuation as a result of the 9 per cent contribution guarantee, which cannot continue to be held in cash therefore it is likely it will find its way into the share market at some point in time. Right now I am seeing more and more investors becoming confused about what to do with their money. Over the past two years investors have been switching money around various investment vehicles in the hope that one will deliver on their expectations with some moving in and out of investments within a few months on unrealistic expectations. This has been fueled by the fear of loosing and a lack of education about how investments work, both of which are counter productive in the longer term. Investors would be better off taking the time to understand the three golden rules to wealth creation, which includes spending less than you earn, investing wisely and then leaving your money alone so it can grow. So what can we expect in the market? There is an old saying that when you least expect it, expect it. Over the past two weeks the market has risen quite strongly in what I believe is a last ditch effort to reach new highs since the low in March 2009. The last time the market rose for more than 10 days straight was following the March 2009 low. While this run up started the bullish run we have experienced over the past 4 months, I believe the current run up over the past two weeks will result in the market achieving its high for the year. Given this, I do not expect the market will continue to rise for much longer before falling into its normal correction that occurs every year. I believe the market will peak within the next one or two weeks and then fall into a low in either September or November. Right now I would recommend investors wait until we can confirm the next low before buying rather than jump in now thinking they are missing out as better prices are likely to be gained in a few months time. Dale Gillham Chief Analyst Wealth Within[/youtube]A number of economic reports are predicting rising unemployment, lower demand and pricing for commodities, stable interest rates and a general slowing of most economic activities such as travel and transport services during the 09/10 financial year. This will obviously affect not only the share market but other investment vehicles. That said money is still being poured into superannuation as a result of the 9 per cent contribution guarantee, which cannot continue to be held in cash therefore it is likely it will find its way into the share market at some point in time. Right now I am seeing more and more investors becoming confused about what to do with their money. Over the past two years investors have been switching money around various investment vehicles in the hope that one will deliver on their expectations with some moving in and out of investments within a few months on unrealistic expectations. This has been fueled by the fear of loosing and a lack of education about how investments work, both of which are counter productive in the longer term. Investors would be better off taking the time to understand the three golden rules to wealth creation, which includes spending less than you earn, investing wisely and then leaving your money alone so it can grow. So what can we expect in the market? There is an old saying that when you least expect it, expect it. Over the past two weeks the market has risen quite strongly in what I believe is a last ditch effort to reach new highs since the low in March 2009. The last time the market rose for more than 10 days straight was following the March 2009 low. While this run up started the bullish run we have experienced over the past 4 months, I believe the current run up over the past two weeks will result in the market achieving its high for the year. Given this, I do not expect the market will continue to rise for much longer before falling into its normal correction that occurs every year. I believe the market will peak within the next one or two weeks and then fall into a low in either September or November. Right now I would recommend investors wait until we can confirm the next low before buying rather than jump in now thinking they are missing out as better prices are likely to be gained in a few months time. Dale Gillham Chief Analyst Wealth Within[/youtube]

A number of economic reports are predicting rising unemployment, lower demand and pricing for commodities, stable interest rates and a general slowing of most economic activities such as travel and transport services during the 09/10 financial year. This will obviously affect not only the share market but other investment vehicles. That said money is still being poured into superannuation as a result of the 9 per cent contribution guarantee, which cannot continue to be held in cash therefore it is likely it will find its way into the share market at some point in time.

Right now I am seeing more and more investors becoming confused about what to do with their money. Over the past two years investors have been switching money around various investment vehicles in the hope that one will deliver on their expectations with some moving in and out of investments within a few months on unrealistic expectations. This has been fueled by the fear of loosing and a lack of education about how investments work, both of which are counter productive in the longer term. Investors would be better off taking the time to understand the three golden rules to wealth creation, which includes spending less than you earn, investing wisely and then leaving your money alone so it can grow.            

So what can we expect in the market?

There is an old saying that when you least expect it, expect it. Over the past two weeks the market has risen quite strongly in what I believe is a last ditch effort to reach new highs since the low in March 2009. The last time the market rose for more than 10 days straight was following the March 2009 low. While this run up started the bullish run we have experienced over the past 4 months, I believe the current run up over the past two weeks will result in the market achieving its high for the year.

Given this, I do not expect the market will continue to rise for much longer before falling into its normal correction that occurs every year. I believe the market will peak within the next one or two weeks and then fall into a low in either September or November. Right now I would recommend investors wait until we can confirm the next low before buying rather than jump in now thinking they are missing out as better prices are likely to be gained in a few months time.   

Dale Gillham

Chief Analyst

Wealth Within

It’s one of the things we always dream about but often never get around to doing – building our own profitable share portfolio.

The truth is that just about anyone can build their own share and achieve good returns without too much knowledge or risk.

The key to being successful is to practice good portfolio management.

So how do we do this?

What follows is a practical framework that will not only allow investors to build a profitable portfolio, but ensure they select only stocks that have a higher chance of being consistently profitable.

The list of stocks you select for your portfolio will depend on the time you have available, your resources and the goal of your portfolio.

That said, for most Australians, I’d recommend not straying too far outside the top 150 stocks on the Australian market. Why?

 Look at the following reasons:

• The stocks are highly liquid.
• They are all profitable businesses with some of the best managers in Australia.
• The stocks are bought heavily by institutions.
• They generally pay good dividend yields that have good tax credits attached.
• Reliable information about these stocks is much easier to obtain.
• The chances of any one of these companies going broke is small.
• Over a 10-year period these stocks will produce good returns.

Unfortunately, many newcomers to the share market mistakenly believe that buying these types of stocks is too expensive and that buying cheap stocks is the best method for achieving higher returns.

This belief not only costs you money, it hinders your ability to generate profits because you are investing your faith in speculative stocks.

In other words, you are speculating that a cheap stock will perform better that a solid blue-chip stock.

You want to buy quality stocks, not quantity, because this is where you will, for the most part, get the greatest returns.

The reality is when you buy cheap you are gambling with your money and taking higher risks.

If you are speculating that smaller stocks will rise faster in a shorter period of time you are taking higher risks, will result in more losses and very average returns.

It has been proven that concentrated portfolios perform better than large portfolios and provide lower levels of risk. I recommend holding no more than five to eight stocks, but depending on the goal of your portfolio you can hold up to 12. Holding more than 12 stocks will dilute your returns and increase the risks you are taking.

Simply reducing the number of stocks held in a portfolio can dramatically increase investors’ returns.

If you take this low-risk methodical approach to investing over the long term, then nine times out of ten, you will achieve far higher returns than if you try to beat the market averages by thinking you can pick the next boom stock.

Today is the last day that people can take advantage of the Governments tax incentive to place up to $1 million in super funds. In speaking to a number of people who have set up Self Managed Super Funds as a result of this offer, it is evident that they are unaware of the compliance requirements of running a SMSF. This is supported by the recent Australian Audit Office report, which found that around 25,000 SMSF had failed to lodge a tax return. While I am a strong supporter of investors controlling their assets, three issues need to be made really clear; first, there is work involved in operating a SMSF in comparison to a managed super fund; secondly, if compliance issues are not handled correctly it will potentially cost the investor a lot of money, and thirdly, the individual is the investment manager of the fund, therefore they need to have a working knowledge of the various investments available to them. If people are not prepared to take the time to understand these issues, it might be better for their superannuation to stay where it is.   
 

So what is happening on the market?

It is now 17 days since the All Ordinaries achieved its all time high of 6437.70 point on 4 June and in that time price has swung up and down within a 4% range. Last week I indicated that the current weakness in the market would continue for a number of weeks, which has certainly been the case. I also stated that there was an increased probability that the All  Ordinaries was falling into its yearly low but to confirm this we need to see the market fall below the low of 6200.10 achieved on 13 June, which I expect will happen in the next few trading days. Once this occurs I believe the market will continue to trade down to between 6000 and 5900 points before it finds support. As I have previously indicated, it is highly likely that the fall will last into mid July after which the market will trade up strongly once again.

Time is running out to take advantage of the Governments tax incentive to place up to $1 million in your super fund before 30 June. And while there are advantages to doing this, I often find that investors make investment decisions based on tax rather than the investment itself. Remember, a super fund is a simply a tax structure, not an investment vehicle and depending on your investment goals there may be disadvantages to placing all your money in a super fund. This is particularly so if your goal is to use leverage to increase capital gains as a super fund cannot borrow to invest, which could have a significant impact on someone in the wealth generating stage of life.

The other important fact to consider is that any money placed in a super fund cannot be accessed until retirement, which may not provide you with the flexibility you require to grow you net wealth. As a rule of thumb, I always say that if an investment needs a tax incentive to make it attractive, it is probably not a good investment.          

So what is happening on the market?

On of the key mantra’s I use in trading is to always wait for confirmation of a move before acting, and right now this is paying off. After trading sideways for the past month, the All Ordinaries rose strongly on Monday this week breaking above its previous all time high of 6376.90 achieved on 9 May before reversing to trade down over the past three days. False triggers such as these are not uncommon and often catch traders and investors unawares, which is why it is better, at times, to take a wait and see attitude.
  
I still believe it is too early to confirm that the market is falling into its yearly cycle low but the probability increases each day the market trades down. If the market is falling into its yearly low, we need to see it fall for at least two to fours week and more than 10% in price. With the current indecision in the market, anything is possible right now as it is still possible the All Ordinaries could rise up to trade above its recent highs, although I believe the probability of this occurring in the near future is low.

As I have stressed before, investors should take a wait and see attitude until we know for certain which direction the market is heading.