FYI | Oct 08 2014
By Peter Switzer, Switzer Super Report
Sometimes, just when you think things couldn’t get any worse, life can surprise you, and it does. But when that happens, it puts you closer to that time when the news in your life improves and provided you have a sound approach to living, just like investing, the good eventually outweighs the bad.
Of course, things for us investors haven’t been all that bad. The index plus dividends was up 17% for the financial year and that’s the year that counts for tax purposes.
Since March 2009, when the secular bull market started, the capital gain from the stock market plus dividends has wiped out the crash losses that started in November 2007.
Glass half full…
As we closed last night, the S&P/ASX 200 index was sitting at 5284.2 but it was 6828.7 on 1 November 2007, so we can complain that we’re a long way from there, while the Yanks are above their all-time highs created before the GFC.
But all this makes me more comfortable that we have a few more good years ahead, where we eventually pass our all-time highs. Part of the reason why we haven’t gone higher has been the very high level of the Oz dollar, which now is getting down to a more competitive territory.
"The recent depreciation of the Australian dollar will also assist in the transition towards non-mining sources of economic growth, assist employment in some industries, such as tourism, and help stem job losses in manufacturing," said ANZ’s chief economist, Warren Hogan, when job ads hit a 19-month high after rising in trend terms for 11 months straight.
This is a great forward indicator for the Oz economy and should underpin an improving stock market into 2015. However, it should even come earlier than that.
Morgan’s chief economist, Michael Knox, thinks fair value for the S&P 500 is around 1880 so it might need an 80-point fall and it could come over October when QE3 ends. I’m hoping for that so it can clear the decks for a nice stock market surge over November and December.
Not glass half empty
For the local S&P/ASX 200 index, Knox’s news is more positive. He says fair value is 5660 and for year’s end, given earnings expectations, which don’t look under challenge, the fair value call is 5800 or so.
I reckon if Knoxy can be right on this, then you guys might even forget that I once sweated on 6000 by year’s end.
Adding to my “don’t lose the faith” story are the views of portfolio manager ST Wong of Prime Value. Last night I asked him to look at stocks that now look like value because of the recent stock market sell off, which, of course, has been related to a falling dollar — or more correctly, a rising greenback.
ST pinpointed Oil Search, Genworth and Boral as cases in point that now appealed to him but his whole analysis reinforced my view that I have expressed to you here before.
The economics of the post-GFC world worked against our stock market, except for mining stocks (thanks to China) and banking stocks (because of our interest rates and OK economy). However, many other companies copped the backwash and their time in the sun lies ahead of them.
Buying opportunity
More importantly, this falling dollar might be chasing away foreign investors, fearing a sliding currency but it actually opens up opportunities for local investors, who can now buy CBA at under $76.00, where once it was $83.92! Before this dollar drop stuff is over, it could easily go lower. But it will be a buying opportunity for anyone who thinks they like, say, a 5% plus dividend plus franking credits and, say, a measly 4% capital gain over the next year, which totals up to at least 10% for CBA — and I am being way conservative.
In my books, for a conservative investor, that’s a pretty good return from a quality company that has a history of paying great dividends, which go up nearly every year. It’s the kind of company you’d like to buy more of after the next crash, when its share price could easily be halved!
Given timing markets isn’t easy, holding stocks that fit this bill makes a whole lot of sense. And so the moral of the story is simple — for the long term, have a sound investment process, and for the short term, keep the faith!
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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