Storm clouds on the horizon or just the last rains of winter?

October 2nd, 2009  |  Posted in General

So much has happened since I last wrote to you...

As “predicted” the market held up and has been rocketing upwards. 

In fact the market has had its best run in two decades!

The all ordinaries index rose over 20% in the past 3 months, the best run since the index jumped 27.4% in the September quarter of 1987.

And similar to 1987 it would appear that the worst of the GFC is over and the market has responded to that quickly and with gusto.

There is absolutely no doubt that many quality shares were oversold and few were listening when we encouraged our clients to buy in February, March, April and May of this year however that may well turn out to be the best advice as people who headed the call have done exceptionally well in the last few months. 

However with the All Ordinaries closing down 2.04% today, mirroring a similar fall on the Dow Jones index people are starting to question if this run will be sustained – was the recovery all too good to be true?

There is no doubt that the market has moved up very quickly and that companies may struggle to match those expectations no matter how quickly they are recovering and how much confidence is back in the market.

October is traditionally a quiet month in the share market and it would not surprise me if the market retraces.  4300 is a strong support point though and I believe as long as it holds above that point there is little to be concerned about.    

But generally this pull back is most likely to be just the market taking a breather.  Canny investors will use this opportunity to build their positions in key holdings. 

There are still worldwide concerns about Governments being too hasty to withdraw stimulus packages and the negative impact that would have on a sustained recovery but when the RBA starts talking about increasing interest rates to put a brake in growth I think it's reasonable to believe that the recovery may very well be sustained in the medium to long term. 

My personal view is that the recovery is going to be slower than the market is currently "predicting" and therefore some price adjustment to sentiment will occur.  Again I view this as a buying opportunity.

I understand that many of you are still a bit nervous – once bitten twice shy.  I personally am still smarting a bit from my losses but I am very encouraged by the strong rebound in my portfolio and looking forward to rebuilding.  The important thing to note is the only way we can rebuild is to participate in the recovery - sitting on the sidelines will not work. 

We’ve learnt a lot over the last couple of years about the markets but more importantly about you.  And we’ve been conducting extensive research with our clients about what you want to invest in next.  Importantly we've reviewed all our strategies to understand what works best in all environments and wouldn’t you know it, some "old faithfuls" have turned out to be some of the best performers.

Many of our clients have been getting some excellent results, cash flow, and returns from the Magic Moo Cow (Buy Write) strategy. In fact last month was a boomer with returns of up to 5.6% shown by many!

And it performed very well throughout the down turn too in most cases outperforming just holding shares alone. 

We’re so enthusiastic about it again we’ve built an entire website around it.  Go to Magic Moo Cow to find out more. 

We’ve had a lot of people ask us "What's next - How do I get involved in the recovery with not much risk, low investment, no ongoing costs and lots of potential upside?"

And I think we've answered the question by partnering with Merrill Lynch - look out for a brand new investment "Accelerator" in the next few weeks. 

And remember Dollar Cost Averaging - this is making regular top-ups to your investing portfolio regardless of market action.  While it is impossible to time the market, it is possible to take advantage of this unique opportunity by making a regular contribution to your wealth plan. 

Regular contributing to an investment plan is one of the most proven wealth creation strategies which takes advantage of price variation and compounding to build wealth over the long term.  Now is the time to start or continue your contributions. 

And indeed you would have seen a handy increase in the value of your portfolio in the last couple of months if you had stayed in and many of our GEMs investors have been successfully following this strategy.

So whilst there is room for a downward movement in share prices now is not the time to lose your nerve - indeed it may just be the opportunity those who are waiting on the sidelines have wished for to get back in the market.

Happy Investing!

Peter Spann

Disclaimer
Peter Spann is a representative of Freeman Fox Ltd ABN 17 010 763 041, the holder of an Australian Financial Services licence (AFSLN 246510).  This general advice is provided by Freeman Fox Ltd. It does not take into account your investment objectives, financial situation, or needs. You should consider the appropriateness of this advice having regard to these matters, and read the relevant Product Disclosure Statement (PDS) before making any decision to invest.
 
Information contained in this is obtained from various sources. The changing character of markets requires constant analysis and may result in changes. Past performance is not a reliable indicator of future performance. All investments contain an element of risk. Actual performance will be different and returns are not guaranteed. While information in this update is given in good faith and is believed to be reliable and accurate, Freeman Fox gives no warranty as to the reliability of accuracy of the information, nor accepts responsibility for any errors or omissions of third parties. Opinions expressed are subject to change.
 
If you require assistance in relation to your personal investment situation please contact a representative of Freeman Fox Ltd on 1800 000 369. For a copy of our Financial Services Guide, please go to http://www.freemanfox.com.au.