Business News

Big investor question

| More

by Peter Switzer

The big question for investors to work out is whether the old market cliché or rule of thumb — “sell in May and go away” — will work this year? It certainly was on the money last year with stocks losing ground until late August when there was a good to great rise in stocks, depending on where you invested.

Taking the financial year so far, our S&P/ASX 200 is up about 10 per cent, the US’s S&P 500 is around 27 per cent higher and even the battling FTSE in London put on 20 per cent or thereabouts.

Market spooks

Our market languished behind the others because of the mining tax, the carbon tax, short-term effects of recent natural disasters, the RBA’s high interest rates and the related high dollar. Take out the appreciation effect of the dollar and our stock market jump is similar to rises in overseas markets.

But hang on — didn’t we suffer a two to three per cent fall in shares last year? That’s right for the calendar year and this result was made up of losses in the first half but then in contrast profits came after August.

The Yanks, in particular, were spooked by the Euro-debt concerns, ‘starring’ the likes of Greece, and there were nagging doubts about whether the US would fall into a double dip recession.

Interestingly, many of the doomsday merchants who thought they were right last year are now doubling up, expecting that they have to be right some time. And they will — one year — but a lot of us could miss out on moneymaking opportunities in the meantime.

Market tests this year

So, will there be a trigger this year for a “sell in May and go away” strategy?

There could be with the Goldman Sachs’ view that the QE2 ends by July. That means the market will be on its own and it could be a time for hedge funds and short-sellers to test out the stock markets’ big gains across the world.

Of course, there will be other tests such as the oil countries’ people power protests, Japan, European debt, and could China be slowing down or even a bubble?

For the long term

By the way, every rally always has reasons to be worried or a seller, and the people who can pick the market turning points make great money. Those who can’t, lose money.

That’s why I like quality businesses that pay dividends, which can make me look like a monkey in the short-run but which pay me around 10 per cent per annum over longer periods of time.

Don’t forget, there will always be doubters but many of these people are those with a vested interest in having you buy and sell on a regular basis.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Watch more from Peter on SWITZER TV.

Published on: Monday, March 28, 2011

The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.

Dow to reach 20,000 – can you believe it?

It’s not All Too Hard, it’s More Joyous!

Abbott deserves a Tony Award for that speech!

When do we dump stocks?

Abbott’s budget reply: is he really trapped?