Woolies fans need to let go

Published in the Geelong Advertiser, November 2014 by Dale Gillham

Long term investors are passionate about their Woolworths (WOW) shares, and the GFC certainly strengthened this resolve, with the shares falling less than the market at that time.

However, even when the reverse is true, and recently this occurred, some investors will continue to hold no matter how far shares fall. But what's the risk, and why put any company on such a high pedestal?

Investors argue that WOW is in the top 20 listed Australian shares on our market and they are able to walk right into one of the stores, which provides a sense of comfort.

But most investors are just attracted to the 4.5 per cent in dividends paid to them each year, which is all very well, but if your capital is being eroded as the price falls, what is the dividend really worth?

In my opinion, investing is not just income, it's about managing risk.

WOW shares recently fell by around 20 per cent from the May 2014 high of $38.92 and are currently trading at around $32.75. Although WOW may find support, there is still a risk of a further fall to around $30.

Therefore, the plan ought to be to collect the income when times are good and have a strategy to exit, or take some money off the table, when your risk dramatically increases.

So what do we expect in the market?

Midweek the Australian share market was buoyant, rising 56 points during Wednesday's trade, but buying slowed the following day, closing just below 5400 points.

The real test for the All Ordinaries Index will be whether it can build sufficient momentum to break the 5500-point level over coming weeks in time for Christmas.

Not helping the market's cause this week was softer investor sentiment brought on by disappointment in the Medibank Private float, a softening of resources stocks and debate about government infrastructure spending.

Back to Articles