Indecision Dominates the Stock Market

One thing I’ve learnt over almost three decades of trading the stock market is that when individuals invest their hard-earned money, they never expect to lose. While on an intellectual level they know it is possible to lose money, they just don’t think it will happen to them. This false reality unfortunately means investors tend to make emotional decisions when investing their money, which leads to mistakes when managing their portfolio.

Investing in the stock market

When you invest with a mindset of not losing, you expose yourself to higher risks, which in turn results in one of two issues. The first is you achieve poor portfolio returns and secondly, it increases your stress levels, as you watch your stocks fall in price and your portfolio devalue. Indeed, watching your investments fall without taking the necessary action to exit is the difference between a comfortable, early retirement and working until pension age or, in some cases, longer.

Over the years, I have reviewed many portfolios and the one thing that remains constant is that the majority of investors are ignorant about the reality of about what investing their hard-earned money really means. A motto that I continually drum into my clients when it comes to profitable investing is what you do not lose determines how much you make.

While this is overly simplistic, once you learn the rules about how to find good investments and you are able to manage them with the knowledge and confidence of knowing when to exit, your risk and stress levels will decrease and you will profit more. While it is inevitable that some stocks will fall in value after you purchase them, the reality is that to achieve better than average returns with your portfolio, you need to concentrate on assets that are rising in value and increasing your wealth, and sell assets that are falling away.

What were the best and worst performing sectors last week?

The All Ordinaries Index continues to promise more than it delivers given that, once again, some sectors have risen strongly while others have fallen heavily. The best performing sectors included Information Technology with a strong rise of 3.5 per cent, while Financials finished the week up just 0.36 per cent followed by Industrials, which was up around 0.29 per cent. The worst performing sectors included Utilities down 4.78 per cent followed by Energy down 3.42 per cent and Healthcare, which ended the week down 2.13 per cent.

Looking at the ASX top 100 stocks, the best performer last week included Reliance Worldwide up 32 per cent after posting a solid report, although in my opinion, the results do not justify the rise. Next up was Cleanaway Waste Management up 15 per cent followed by Stockland and Boral, which were both up over 7 per cent.

The worst performers included Whitehaven Coal which was down 29 per cent after announcing a big slump in profits earlier in the week. Ampol was also down 8.8 per cent followed by APA Group and Aurizon Holdings, which were both down over 7 per cent.

What's next for the Australian share market?

To understand the Australian stock market right now, we need to look at what has happened over the past few months. When COVID-19 hit, world markets fell heavily in the fastest technical bear market we have seen in history, which resulted in the All Ordinaries Index falling 39 per cent in 22 trading days. From the low on 23 March, the Australian market rose 42 per cent over 53 trading days to a high of 6,314 points before falling away over 4 days and around 7 per cent. Over the past 53 days, the market has only risen around 8 per cent to the high of 6,369 points this week. In short, without meaning to be repetitive, the Australian stock market is going nowhere.

One thing I know for sure is that if confidence is high, price rises strongly for a significant time but when fear rules, prices fall heavily. Right now, confidence is low, as we are constantly hearing news about the uncertainty of world economies and our future, so indecision is ruling. While the market will pick a direction soon, unless we can get more certainty and confidence, it is more likely that the direction will be down in the short term.

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 award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.