Bigger picture helps to cut risk

Published in the Geelong Advertiser, July 2013 by Dale Gillham

In this technological age we have access to so much information and yet investors continue to take unknowing risks with their investments, with one of the latest issues being around the recent changes to banking legislation.

Investors are handing over their cash to trusted brands without understanding the fine print and assume that their risk is low, but is it?

Under this new legislation our banks are forced to lower the risk on their books to protect against further economic shocks from a slowing Chinese economy and a likely withdrawal of the money printing program in the US.

Further risks are that job losses will continue here in Australia with the slowdown of the mining sector, and this could have a domino effect on the property market in the short term.

All of this could come back to squeeze the banks, particularly if the US government starts winding down the printing presses as the availability of credit will tighten and the banks need credit to function.

So how do our banks lower their risk and make sure they have adequate capital?

The big end of town are not willing to lend as the new regulations mean the risk on these new debt facilities are passed away from the banks to them.

This leaves retail investors who are hungry for good yields and don’t understand their risk if something goes wrong.

So what do we expect in the market?

Following on from the strong upward push on our market last week, buyers maintained bullish pressure this week with the All Ordinaries quickly moving ahead of last week’s high, with an ever closing gap towards my short term target of 5000 points.

This week’s move is only two weeks up from the recent low, however it is showing promising signs in terms of buyer momentum.

When considering my outlook for the direction of the market I rely on the bigger picture and take a bird’s eye view, however, I see many traders, to their detriment, getting caught up in the short term moves of the market on daily charts where all the ‘noise’ occurs, and this price action is also what investors hear about on the evening news.

Whereas, by having the ability to assess the bigger picture, the landscape for where the market is likely to move to next becomes clearer and this allows you to identify where possible risks exist. Learning how to do this can dramatically change your likelihood of success in the market.

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