Investment Returns - Where to Next?
Amidst the hysteria about recent market volatility it’s worth taking a deep breath and reflecting upon what history tells us about investment performance.
Recently I read a book written in 1998 and the introduction so accurately describes today’s markets I thought it was worthwhile repeating below.
“In 1980 the price of a barrel of oil had risen alarmingly and long lines of frustrated American motorists sat fuming at every gas pump.
Newspaper articles appeared daily that bemoaned the permanent shortages in non-renewable fuels and every learned expert on Wall Street and academia was certain oil would rise from $40 to $100 per barrel. ……. Interest rates had risen alarmingly and investors were hysterical over high inflation and labour unrest.
There was a sense that the United States was slipping as a world power and that shortages in all sorts of goods were permanent – that the world was running out of everything. …
Consumers turned down their thermostats and bought sweaters. They bought smaller more efficient cars and household appliances…..
When oil did drop in price from $40 a barrel in the early 1980’s to $10 in the mid eighties it took with it real estate market prices. It became hard to give away real estate. Texans invented the phrase “see through buildings” for partially completed buildings without tenants or the prospects of tenants. ….” (Contrarian Investing by Gallea and Patalon published 1998)
It is sobering to realise that in the past we have already had a bear market based around oil costs and housing. Investors all over the world had analysed the markets and “knew” that they were into hard times and the world was going to change forever. It is an old story in the investment markets. Today’s news articles drive investors’ short term decisions. For many people those ideals about long term investment timeframes are smashed in the pain of the present bear market. Gone also are ideas about taking advantage of drops in the market.
In a bear market, stocks are completely decimated... to the point at which no sector of the market is spared. It gets really ugly and it feels as though it may never end, but there is some good news...
Investor often can’t look out past six months of pain and take advantage of the markets.
In hindsight we all know the markets did recover and do very well until early 2002. In 2002 the Technology companies were decimated after rising to unsustainable levels. Many clients super funds were affected for 12 months. After 2002 they again did very well until the beginning of this year.
There is an old adage in investment lore that says “Buy when blood is in the streets”. At MTO we believe it is sometimes best to wait a while, however every client should be examining their situation now to take advantage of the current markets.
The professional managers operating the different companies around the world will be analysing the current situation and developing strategies to “take advantage” of the current situation. This could be Toyota gearing up to sell more hybrid vehicles, it could be Queensland coal companies increasing capacity to meet global energy needs or Australian banks managing their risks better.
Tips for riding the rollercoaster
- If you are feeling the pain of watching your investments fall and are uncertain about what to do please contact either Richard or Robert in our office.
- Always keep your long term goals firmly in front of you. The question you need to continually ask is “How can I use this situation to achieve my long term goals?”. An Olympic athlete who worries about some short term pain in training and pulls up will never take home a gold medal. They only look to the final goal.
- Time is on your side. So even those who are retired are still investing for another 20 years.
- Diversification is still a robust, cost efficient, and simple means of maximising long term returns.
- Review your Insurances. With high interest rates and larger loan repayments, now is not the time to run down your insurance and take risks with your family home. “If you have an accident would you rather lose your home or your mortgage?”
Over 55 and Building your Super?
If you are looking to build your super then please talk to us. There are a number of methods of doing this and the government may well assist you with co-contributions and tax deductions. Through the correct structuring of your investments it is often possible to add an extra $100,000 to your retirement savings over 10 years. We are happy to review your situation and provide advice in this area.
Finally ….
I would like to repeat myself. When all you can see is the falling value of you investments and feeling the pain of this. Don’t panic! Very few people make good decisions under stress. Talk to us about your goals and your pain.
ING Market Update
After five years of strong returns, the Australian sharemarket has hit a speed bump. Dr Don Stammer has spent more than four decades in the investment industry. He has worked in the Reserve Bank, is director of numerous companies and is one of Asutralia's leading economists. Click here to view his webcast.
If you do not wish to receive these emails, please email Karyn at lordk@mtofs.com.au to be removed.
e