Silly markets!
May 20th, 2010 | Posted in Share Market
I always say the markets look for excuses to do what they were always going to do.
The US and world markets are taking a hammering at the moment, but really that comes as no surprise. It’s just the markets doing what they always do.
The run up to 5,000 was over exuberance – why would we expect any sense now?
Having just finished Wealth Magic I’ve spent a lot of time explaining this form of silliness in the markets. Really they are like 2 year olds – random, over-reactive but eventually burn themselves out of energy and then nap quietly in the corner until the next rage (or bout of sugar).
And whilst amateur investors are put off by all of this nonsense and are confused (mostly because they are trying to make sense of it all logically – I mean what is logical about a 2 year old?), it is exactly the same reason professional investors enjoy the equities market – opportunity!
Mis-matched pricing allows investors to buy quality shares at less than market value.
And for those of us trading the Buy-Write strategy, volatility increases options prices so whilst we may be experiencing downside on the equities prices we are getting upside on options prices (this does take a little time to filter through the markets).
So whilst my preference is always for the market to be going up (because generally I am long) these market machinations don’t really bother me as long as fundamentals stay strong.
And large economies around the world are gradually improving. The market just got ahead of them, that’s all, so this correction is natural and expected.
The Australian market breeched its support of 4,500 (I spoke about 4,550 in the Investor Update video - watch it now), and it’s (lesser) support at around 4,250 so now we are looking at around 4,000 and below that 3,750.
It’s a little too early for all but the bravest to be buying now, but I would certainly continue averaging in (your regular monthly contributions to funds and personal investing programs) – because these bargain prices will really build up your holdings. I’m holding around 30% in cash at the moment ready to pounce when I see some stability return.
This sell off has been rapid and definitely oversold and it might keep going for a little while yet, but it’s all swings and roundabouts.
During these times we should be looking to the best-of-the-best for leads, and Warren Buffett is still the stand out. Any significant decrease in the price of BRK just makes the price of the “Growth Plus – Berkshire Hathaway” even more of a bargain for those of you who feel confident that Buffett will continue to out-perform the market and that his share price will be up at least 20.5% over the next 3 years (on a volatility managed basis). $1 buys approximately $5 in exposure and there are no additional costs, interest or payments.
So the message is pretty simple – stay calm, ride out this wave, and get ready for bargain buying when the opportunity presents itself.
Cheers,
Peter Spann
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