Share Market Wrap 12th Oct 07

Last week while holidaying in New Zealand, I was reminded that investors don’t actually pay capital gains on their investments. However, the same cannot be said for Australia. In my opinion I believe we pay far too much tax on our investments especially when it comes to property where stamp duty and land taxes makes it almost impossible for an investor to turn a profit for several years.

In the share market people use capital gains tax as an excuse for poor portfolio management because they are concerned that if they sell they will have to pay too much tax. But let’s face it, if you are paying tax it means you have made money, which is the whole point of investing. Holding onto a stock simply because you want to avoid paying tax could cost you a lot of money and lost opportunity particularly if the share falls in value because you are losing profits. Indeed, the amount of capital gains tax you will pay could be much less than the amount you lose. A rule I always use, is to never make an investment decision solely based on tax.

So what can we expect in the market?

In previous reports I have mentioned my concern that the market is currently travelling faster in price than we have seen in the last 25 years and it is doing so on lower volumes. Surprisingly, nothing has changed in the last week as the record pace of the current bull-run has continued to push the market to new all time highs. I do not believe this pace is sustainable and I still expect the market to fall by a few per cent over one or possibly two weeks in the very near future to bring some normality to our market. This is supported by the fact that over the next three weeks we are entering a very unpredictable time period on our market with natural support and resistance levels likely to be unreliable. Given this, I would urge investors to exercise caution over this period.

Social bookmarking: These icons link to social bookmarking sites where readers can share and discover new web pages.