FYI | Apr 27 2012
By Peter Switzer, Switzer Super Report
We had a potential financial planning client who only had $6 million to invest around August last year and while many of us would have loved to be him, he once had $20 million!
That’s why he came to see us, but because he was so pessimistic after reading a whole pile of stories from journalists who know very little and who continually quote doomsday merchants that are either talking up their own investment book or who are simply economists who are bad guessers, he was not up for change.
Missed opportunity
He wanted to play it safe and I could understand his view as a 6% term deposit on $6 million would return a nice $360,000 a year, but I still regret that I didn’t argue with him. I guess there were 14 million reasons – the amount of dollars he had lost – but I am still annoyed because he has missed the bounce in the local stock market from 3,863.9 on September 26 last year to 4,360.4 where the S&P/ASX200 index is today. That’s a 13% bounce and so if this potential client had even slipped $1 million into an exchange-traded fund (ETF) he would be up $130,000 in only five months and that’s ignoring dividends.
Regular readers know I have been cautiously optimistic that stocks are going up this year, as I was last year and the year before that. I must admit, I only care what happens on a financial-year basis because that is the only one that is relevant to my investments tax-wise.
We’ve had two good financial years, but the current one is still in negative territory and we have to beat 4,608 by the end of June to finish in the black on share prices. So we need another 5.6% to achieve that, which is not much, but it will be across the tricky months of May, June and July. That said if you add in dividends, we are probably line ball and possibly ahead if your stocks are great dividend payers.
My strategy
When it comes to investing, especially in a self-managed super fund (SMSF), you need to have an investment strategy you can stick to. For me that meant that across 2008 and 2009 I stuck to my strategy of buying great quality companies that paid dividends, which meant that I dollar-cost averaged the holding price of many of my stocks; this is exactly what I am going to do going forward.
I know there will be some dud days, weeks and months, but history is on my side and at the moment some big names are giving me reason to remain cautiously optimistic.
Mario Draghi, the European Central Bank (ECB) boss, seems to copying the US Federal Reserve’s Ben Bernanke and this will help the eurozone eventually get through their problems. Bernanke is playing the US market like a concert pianist. Smart people, like Barclays Capital’s Larry Kantor, think stocks go higher this year and so do BlackRock’s Bob Doll and Meredith Whitney – a US bank bear who is now turning more positive.
Meanwhile locally, Bell Potter Wholesale’s star stock tipster Charlie Aitken, who was a tad negative a month ago, is turning positive believing that interest rate cuts and a lower dollar will help our stock market play catch up. He has noticed us not overreacting to overseas stories and this has helped shore up his rising confidence.
I really wish I had talked that potential client into playing my game. However, some people are too stubborn and like to play a changeable game, but that increases your chances of mistiming and mistake making.
The lesson is: have the guts to stick to an investment strategy that has history on its side.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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