Dow Jones Index Down 900 Points

We all want more money so we can live a comfortable life in retirement, yet the vast majority of those who do retire rely on some form of government pension. Why is this the case when we all have the ability to generate extra cash flow to create more financial security for ourselves?

Investing and the big lies we tell ourselves

Unfortunately, when it comes to investing, there are two major lies we tell ourselves that stop us from investing or finding ways to generate additional cash flow. The first lie we tell ourselves is that we need to be right, yet when it comes to making an investment decision we fail to pull the trigger because we don’t want to be wrong. Historically, the most successful people in the world are so because they failed or made mistakes more than anyone else.

The second lie we tell ourselves is that we must not lose. As an educator and stock market commentator, I see this at play every day as individuals buy stocks that are falling in value only to watch them fall further. They tend to ignore the fact they are losing money and hold on to the stock in the hope of it recovering, rather than admitting their error in judgement and exiting quickly to realise a small loss.

The Australian stock market has changed significantly over the past 20 years and the previous ways of investing are being challenged. As such, those who learn to deal with this will benefit, while those who hold onto the big lies will continue to struggle.

What were the best and worst performing sectors last week?

The best performing sectors included Utilities up 1.30 per cent followed by Industrials up 0.79 per cent while Consumer Discretionary was up 0.34 per cent. The worst performing sectors included Information Technology down 1.68 per cent followed by Materials down 1.14 per cent and Energy down 1.04 per cent.

The best performers in the S&P/ASX top 100 stocks included AMP up 9.95 per cent followed by Orora up 5.54 per cent and Amcor up 5.36 per cent. The worst performing stocks included ResMed down 9.78 per cent followed by Northern Star Resources down 8.48 per cent and Dominos Pizza down 6.92 per cent.

What's next for the Australian stock market? 

Over the last few weeks, I have stated that we need to expect the unexpected given how our market has traded over the past couple of years and last week proved just that. While in prior week’s the market traded higher earlier in the week only to exhibit weakness and fall away towards the end of the week, last week the opposite occurred.

By market close on Wednesday 27 April, the Australian stock market was down almost 3 per cent with many investors becoming concerned and talk of the market crashing reared its ugly head again. Then over Thursday and Friday the market rose strongly to erase almost all of the fall over the prior two trading days with the All Ordinaries Index closing just 0.56 per cent lower for the week.

The question most investors are now asking is whether we should be bracing for further falls or if the current weakness is an opportunity. Earlier last month, I indicated that the All Ordinaries Index could fall to as low as 7,600 points before rising again. The market fell to 7,514 points on Wednesday 27 April but closed the week at 7,724 points indicating that the bulls are not done and the current weakness may not continue for too much longer.

That said, the Dow Jones Index fell heavily last Friday, ending the week down 2.47 per cent and showing weakness. Let me say that just because the Dow is looking weak does not mean the Australian stock market will also be weak, as we are often out of sync with the US markets. While the Australian market may open lower and trade down on Monday as a reaction to the Dow falling, if it stays above the low of 7,514 points from last week, I would not be too concerned.

My expectation is that the Australian stock market will either rise up for the two to four weeks before falling into a low or it could fall into the low over the next two to four weeks, which would be earlier than I expected. For now, I recommend continuing to play the wait and see game until the market confirms a direction. If it trades lower, then investors may need to sell to protect capital, however, if it trades up as I suspect it will, there will be some great buying opportunities.

For now, good luck and good trading. 

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the bestselling and award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.