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Market pulls some Rocky moves

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by Peter Switzer

Yesterday one of my financial planners asked me what I wanted to say to our clients with the Australian stock market down 5.5 per cent before it climbed off the canvas – Rocky-style – to post a 1.2 per cent gain on the S&P/ASX 200.

I said to him: “Email out my column from www.switzer.com.au – it says what I am thinking.” It is the beauty of a daily column – it clarifies my own thoughts on investing and it relates it to our clients.

And this morning I am cautiously elated with the Dow Jones roaring back into the black with nearly a 430-point gain, to finish up 3.98 per cent higher, at 11,239.77.

The Nasdaq was up a whopping 5.29 per cent, while the S&P 500 put on 4.74 per cent. It was a much needed rally but it doesn’t mean we are out of the woods yet, though I would bet our market is set for a good day at the office with the BHP-Billiton and Rio Tinto registering double-digit gains overnight.

Most of the time when our clients get worried it is when the short-term gyrations of the market get too much to bear. And it is made worse by my mates in the media who love to pull out headline grabbers such as ‘Market Bloodbath’ or ‘40 Billion Wiped Off Market’ – it’s their job but it scares the life out of investors.

Short-term players have to always look but the long-term investor simply has to roll with the punches and that’s easier if they are invested in good quality stocks and funds.

No one is sure why we saw a seven per cent turnaround on our stock market yesterday but Angus Geddes, the CEO and founder of Fat Prophets, gave me a clue on SWITZER on the Sky News Business Channel last night. He thinks retail investors get spooked by the negative hype and just say they have had enough. And that happens at about the time that professionals are ready to hop in and that’s the real clue.

It is professional attitudes versus amateur ones and that’s what I want to change in my clients. I want them to remember that we are in for the long-term and we buy good assets with which we go the distance until their quality changes.

Clearly, US Federal Reserve chief Ben Bernanke’s speech has changed the views of short-term traders and big institutions who really drive big market moves but my focus is on the real drivers of where share prices will go in the long-term and that is, three out of four years, up!

And the average return in the long-term for shares is around 10 to 12 per cent and so this has to be remembered in the short-term to keep you in for the long-term.

I think we are in for volatile times over the next couple of years because debts are big around the world, but history tells me that good quality companies that pay dividends bought at really low prices is a great strategy. And that’s the biggest reason why stocks will bounce back and if the US can avoid a double dip recession, which I think it will, then stocks will improve between now and Christmas.

However, scary days on stock markets will not go away – it goes with the patch.

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.

Published on: Wednesday, August 10, 2011

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