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Investing 101 – hold a steady course.
Last Friday, 13th of May, I, along with some colleagues, attended a portfolio construction conference offered by Morningstar Research.
The conference itself was rather disappointing and short-sighted. Firstly, much of it was filled by guest speakers who were Heads of domestic and global equities major institutions, such as Goldman Sachs and Perpetual. Rather than providing any great insights into where they saw the market trending, they spent a great deal of their presentations defending previous track records and highlighting all the things they had done right in recent memory.
Secondly, if I were to summarise any market commentary provided throughout the course of the day, it would be that the Australian market may stay flat for a period of time. Why? They felt that from the depths of the GFC there had been a rapid recovery in company earnings, coming off such a low base.
The problem with this view is that for a period time markets may well be flat while companies struggle to maintain such rapid earnings growth, but that’s not to say that Australian businesses are not still extremely profitable. Once earnings really begin to drive forward again we are likely to see significant sharemarket growth.
Of course, a significant factor weighing on the Australian market is the strong Aussie dollar. The impact of this cannot be underestimated. It’s a pretty simple equation – international investors will be reluctant to invest in Australian business earning in Aussie dollars if they think their local currency will eventually strengthen, mainly because when they sell their shares and return their investment to their local currency their return will be eroded by the exchange rate.
But it what it highlighted was the fact that because fund managers are forced to protect the short term returns of their funds to entice new investment, they tend to take a very short sighted view of the market.
An important point we should all remember is that markets are forward-looking. If a company is likely to improve their earnings next year, the time to invest in that business is now. By the time they announce an improvement to their bottom line the market will have already factored that into the share price.
Interestingly, the final discussion of the day was in stark contrast to the previous speakers. It was held by a group of Morningstar equities analysts and a fellow by the name of Ian Huntley, the editor of Huntleys’ newsletter, one of Australia’s best known investment advice publications.
I must say their view of the Australian market was extremely glowing and in particular Ian’s view of the Australian resource sector was the same. His knowledge of China is extensive and taking emotion out of the equation, the numbers suggest China’s requirement for our precious materials has a long way to run. In the coming few years 200 million Chinese will enter the mass affluent market and a few years after that another 200 million will follow. These people will need roads to commute and buildings to live in and the list goes on.
Overall, the conference re-enforced the importance of not getting caught up in the short term noise. It’s this noise that controls the fear and greed in the markets and causes investors to chop and change likes the wind.
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email firstname.lastname@example.org or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.