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Hewison Insights
Australia Stock Market

They Told Me it was Stormy Outside, but I Just Got Burnt!

Andrew Hewison
Managing Director
24 Sep 2012

In other words, persistent financial commentary pointing to a faltering Australian economy and the lingering storm clouds from the European crisis continue to hamper the confidence of many investors. So why then has the Australian sharemarket gained 11% since 1 January 2012?

I must say it has been a pleasure contacting some of my clients recently to tell that their portfolios had increase by between 10-15% year to date. “REALLY?” has been the common response…

Continuing on from Glenn Fairbairn’s article blog post last week, where he discussed the recent overselling of resource stocks, namely RIO & BHP, I was very interested to hear during the week that Rio Tinto maintains a cost to produce iron ore at $50 per tonne. They are the cheapest producer in the world, closely followed by BHP. As Glenn stated, with a softening iron ore price, higher cost producers will fall away leaving RIO & BHP to pick up the slack. So why did everyone sell them?

Buying behavior based on emotion is what controls investment markets. The ability of an investor to ignore the noise around them and invest based on fundamentals will determine their long term success. Either that or just listen to their Adviser!

The sharemarket is an efficient beast. It has the ability to price in influential factors, such as a “faltering economy” around 12-18 months before it actually happens. This may in fact be a reason why, although it seems we have a stagnant economy, the sharemarket has already looked past this and is factoring in the sunny skies ahead. 

In closing, don’t stay indoors just because the same people are telling you it’s raining outside. Summer is on the way, in fact, it’s been summer for a while now…

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 info@hewison.com.au 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.