All Ords Report 14 June 2016
Buying shares is not like buying your first home.
Firstly, how much time did you spend looking at properties before you bought your home? Was it weeks or months? Did you do research, or simply walk inside a couple of properties and within months you were putting the welcome mat at the door?
It may surprise you to learn that I have spoken with people who bought the first house they inspected. Now either they were very specific when talking to the agent about what they wanted, or they got emotional about the decision.
For young people entering the market it can be very daunting making such a big purchase, not only because of the price to get into the property market in and around major capital cities, but how do you know whether the agents you are talking to are just showing you the properties that are harder to find buyers for?
You really have to do your own research, and perhaps employ a qualified buyers’ advocate to assist you, or speak to an agent you know.
Your house may be your biggest investment, and yet, if you really think about it, you may have had little knowledge about the property market when you bought. Most people start in property this way and try to apply it to shares, to their detriment.
A lack of knowledge can show up pretty quickly if the shares fall in value and you don’t know what to do.
While a few small cracks may appear in your bricks and mortar over time, and as long as they are not indicating major structural problems, these cracks can be filled and painted, and are unlikely to change the value of your property. However, with shares it’s not that simple.
If cracks appear in the operations of a company, it will become public knowledge very quickly and the market will vote as soon as this information is known. Your shares will rise or fall, depending on how the news is perceived.
Worse still, if your shares fall this week, and last weekend you told friends at a dinner party how well your XYZ shares had performed, they are bound to keep asking for months “how is that XYZ share doing?”
Interesting how people only talk openly about their wins. That’s generally about ego. Professionals don’t discuss their trades like this.
So, to get the knowledge in the share market, the first thing you can do is look at investing in shares the right way, and avoid:
- Reading free stock tipping reports, or attending free seminars. What do you expect for free anyway?
- Taking advice from friends, or work colleagues, as this could be like the blind leading the blind.
- Buying shares just to receive a dividend. If the company is falling in value this is not a good investment decision.
- Trying to buy cheap. Chances are, if the share price is falling it’s because other people, probably with more knowledge than you, are getting out.
The point is, you can learn to trade or invest yourself, so that you know how to make the profits and keep them, or consider employing a reputable company who will do it for you and actively manage your risk in the market.
Come along and attend a live workshop this weekend!
What do we expect in the market?
Last week, the All Ordinaries Index (XAO) continued to hover around 5400 points. In a report on the market I released to the media on Friday, I mentioned that a move above 5450 points in the coming weeks is possible and if this occurs, the market is likely to press onwards to around 5600 points before the next pull back occurs. However, I would actually prefer to see our market pull back and test support again at around 5300 points and rebound from here, before making this move.
It is true to say that ‘patience is key’ in the share market, and for those of you who have been patient, finally this week is a true sign that the move I have been waiting for is unfolding. Why is this a good thing?
There are two reasons I hold this view, one is that the sooner this move occurs the sooner our market will build sufficient momentum for a more solid rise in the second half, the second is because it represents another sign that the market is behaving ‘normally’.
Given the strength of the fall today, it is probable to see the Australian market continue down for another week or two. Technically, the recent peak occurred in week ending 27 May 2016, and given the drop today, by the end of this week our market will have been down for three weeks.
While this is within the time range for a typical decline, it really needs to come back for at least another week or so to allow the sellers to exhaust their activity, so a further short fall is likely as the market prepares for the next rise.
So much for the saying ‘Sell in May’.
Our market has defied that one. This is why it is so important to let the market tell you what it will do, and continue to read it with a clear head as more data appears on the right side of the chart.
That said, the end of the financial year is fast approaching, and this is typically a time when we see an increase in market volatility; institutions set their portfolios for the second half.
What is interesting is that during this time a number of property stocks go ex-dividend. Currently, the average dividend paid by all companies listed on the share market is around 4.3 per cent, and property stocks tend to pay at or above the average. Coinciding with this, and in normal fashion, after rising steadily over recent months, property stocks may now slow down temporarily.
Dale Gillham is Chief Analyst at Wealth Within