Don’t Write Off the Share Market Just Yet
Some investors have a different perspective on sharemarket slumps. They see the low stock prices as an opportunity to snare a bargain.
During times of market change, it is our natural instinct to guard our wealth and distance ourselves from risk. While this reaction is not surprising, it can also mean losing out on growth opportunities created during uncertain times.
Warren Buffet, one of the world’s best professional investors, sees market downturns from another viewpoint, saying “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”
Generally when we see a cheaper price for something we want we rush in for a bargain, however it can be quite the opposite with stocks. Why is it that we treat stocks that have dropped in price with dread? Stock prices of a listed firm can drop for a number of reasons.
Lately we have seen the stock values of a number of strong companies with healthy balance sheets be negatively affected due to a rush to sell as a result of the economic crisis.
Despite the uncertain share trading environment, fund managers are always checking the market for buying opportunities. Many fund managers are searching to find shares in profitable companies with strong balance sheets and returns. For example Australian companies such as household names like David Jones have delivered strong profits after tax and dividends in 2008. However during 2008, David Jones’ share price fell by more than 30%.
Identifying opportunities
Not all businesses will be affected by the global economic crisis similarly. Some industries are more susceptible to the business cycle than others.
Providers of basic goods and services continue on almost unchanged, for example we all need to eat - so food producers aren’t as affected as much as tourism, motor vehicle sales or luxury goods.
Australia’s population growth is at a 19 year peak and growing at 1.7% per year. Australia’s growing population provides increasing demand for goods and services as people need food, housing, cars, and other staples. Unlike many overseas countries, Australia benefits from two key factors: a high population growth rate and a high demand for housing.
Population growth is nearly twice that of the US while Germany has negative population growth. In America there is an over-supply of housing while Australia suffers from a lack of supply. The combination of limited accommodation and a rising population will create growing demand for housing which will support further construction and provide opportunities for the construction industry.
The value of companies
Many people view businesses with falling share prices with fear, but we need to take a look under the hood of these companies to find out why. Have they borrowed heavily?
What industry are they in? Are they competitive against their peers? Only by answering these questions, can we know if their share price has fallen for valid reasons or if the company is indeed on sale.
When investing, many professional investors look for firms with high and maintainable returns, strong balance sheets and substantial cash flow. These companies are more likely to outlive the volatility storm and may give you a greater return when the market moves into the next phase of recovery and
beyond.
Before you consider changing your strategy, you should consult a professional. Having a financial planner and a long-term financial plan can give you confidence to manage the effects of market cycles. With the right advice you can ensure your investments are tailored to your risk profile and time horizon, giving you the certainty of knowing you’re doing what’s right for you. This article brought to you by a Brisbane business consultant who offers sales training and a web site designer brisbane. Distribution by seo packages. BS1004
Sphere: Related ContentStock Market Turmoil Leaves Many Australian Retirees Worried
The turmoil in the international stock markets is having a tragic impact on the retirement plans of many retired Australians.
For example, during September 2008, it was estimated by Super Ratings, a company that tracks the performance of super funds, that Australian super funds lost as much as 6% of their value. During the past year they lost 12% of their value.
The reason for the massive decline is the current superannuation rules which effectively place the Australian superannuation system in a virtual stock market strait jacket.
Over the years, The Investors Club has argued strongly that Australians should have greater flexibility in using their superannuation to invest directly in property and also to help pay off their mortgages.
This stock market strait jacket has been highlighted by a recent report from the Australian Prudential Regulation Authority (APRA) that tracked the performance of superannuation funds in Australia during the period 1997 to 2006.
Super woes highlighted
The report showed that the ten-year average annual return for super funds with assets more than $100 million was around 6.7% before they imposed fees and charges.
During the same period, figures produced by the Real Estate Institute of Australia (REIA) show that the annual average returns (taking into account capital growth and weekly rents), for a three-bedroom residential home in the major capital cities varied from 11.2% to 16.8%.
The heavy investment in the stock market by super funds is underlined by the APRA report which showed that during 2006 nearly 60% of investments were in Australian or international shares.
The current superannuation rules virtually prohibit the use of superannuation for residential real estate and goes against the basic investment tenant of not putting all of your eggs in one basket.
By allowing Australians to use their super contributions to pay off their mortgage, this would encourage additional super contributions. For example, someone has to earn $150 and pay $50 tax before paying $100 off their mortgage.
It would also allow more first home buyers to enter the housing market at a time when Australia is recognised as having among the most expensive real estate in the developed world and the worst housing shortage.
Interestingly, financial advisers and stockbrokers are the prime beneficiaries of this share market splurge and it is no coincidence that they are major contributors to both political party’s election funds.
It is now time that ordinary Australians were given a greater say in where their superannuation is invested and this should include the option of investing in residential real estate which is a proven long-term investment to create wealth.
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Further information available from :
Kevin Young - The Investors Club Kevin Young - The Investors Club Kevin Young - The Investors Club Kevin Young - The Investors Club Kevin Young - The Investors Club
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