Shares to rise 15pc by mid-next year
by Peter Switzer
Every time I see the market use some bad economic or market news to sell off, my reaction is to think of the legendary Star Wars character, Obi-Wan Kenobi, who might have shared the wisdom with long-term investors to: “Buy the dips, long-term investor. Buy the dips.”
Sure, there is bad news around, but you have to accept that kind of thing when a global economy escapes slipping into a Great Depression and ends up with the worst recession in living memory.
Problems such as Dubai with its debt disaster and Greece with its debt downgrade are a worry, but in many ways their problems are the real world developments, which a global economy just limping out of a recession could produce. In a sense, we’re lucky that they didn’t emerge earlier before the US showed in recovery mode — albeit sheepishly.
Reason no. 1: traders
Many reasons make me recommend being a long-term investor and to be a buyer of the dips in the stock market — even if the dip becomes a correction.
The first is the common explanation you get from market reporters when shares go down. The summary often starts with: “The Dow Jones is down 100 points and this is what is worrying traders…”
The key word there is “traders”. These guys are often just short-term traders, who are like commando assassins — they get in fast, do the job, take what they want and exit just as fast.
Traders can move markets to reflect their shorter-term priorities, which are different to long-term investors.
Reason no. 2: long-term strategy
The second reason why I am doing an Obi-Wan and suggesting that buying the dips is a good long-term strategy is that there are a lot of smart people who are buyers into shares now.
This guy is a case in point. Carmine Grigoli, the chief investment strategist at Mizuho Securities, told CNBC that he thinks the rally has legs — big legs!
“I do expect the market to rise another 15 to 20 per cent by the summer,” he tipped. “Fundamentals are very favourable—you’ve got the economy improving, profits are soaring, valuations are very cheap, acquisition activity is likely to accelerate very dramatically. So this is favourable for equity prices and I do think that you remain invested.”
He said summer, so for us here he’s talking mid-year. Of course, I take with a grain of salt any prediction on where the market will be in the future but I do look at the direction of the consensus of these forecasts, as well as the magnitudes.
I want my portfolio to deliver 10 per cent return on average for the long term and if I can get it from share prices, I can count on around five per cent from dividends as I try to hoard a big supply of good dividend-paying stocks.
Now this is the important point, to get the 10 per cent return you have to remain invested. If I panicked and got out of shares when Lehman Brothers collapsed in September last year I could have missed out on the 50 per cent bounce in the S&P/ASX 200.
It would be great to be a market timer where you cashed out after the first fall in the stock market in November 2007 putting your money into fixed deposits at say seven per cent or better. And then by mid-March, if you were wise enough to believe the bear market was over and you got in big time again — that would be great. However, that’s easier said or written than done!
In it for the long run
That’s what a trader does. A long-term investor buys good companies for the long run — accepting the good and the bad market periods — and they never have to do a John Lennon who once sung: “Nobody told me there’d days like these!”
I remain a dip buyer but I will tell you if and when I change my mind. At the moment the net balance of economic and corporate news is positive and I can’t see a real game changer at the moment.
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Published on: Thursday, December 10, 2009blog comments powered by Disqus