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Hate to say I told you so, but I did suggest in an earlier newsletter this year that we should expect a correction of the stockmarket in 2007. And the latest dive on Wall Street and on the local stockmarket, thanks to an 8.8 per cent fall in the Chinese stock market, certainly looks like a correction.

Not my view

The word ‘correction’ suggests that recent buyers of stocks have been incorrect in paying such prices and now a force for correction has run though equity or share markets. I don’t subscribe to that view.

The start of something …

You see, when the Dow Jones gives up more than 500 points in a trading day before spitting out some more big down days, you know this is the start of something significant. However, it does not have to last. If it did then a correction worsens into a crash and personally I don’t think we are about to pull out the ‘crash’ word just yet.

Check the experts

My surveying of analysts, informed investors and other smarty pants see this as a correction and therefore it could well be a good buying opportunity with one-time expensive-looking shares now better value.

Looking down the track

On that subject – value – let me make an important clarification. When I think out loud or in print, I always adopt a long-term point of view. That means I don’t put myself into the shoes of day traders, though my musings can be of use to these quick buck merchants.

Watching the clock

For example, there will be some traders waiting to pick the bottom of this correction and will try to buy low and ride up a future market comeback. Working out the timing is their challenge.

Shopping delights

For long-term share players and those running their own super funds, this could be a decent buying opportunity to put some good stocks into their portfolio. It’s also a chance to get into some dollar cost averaging. In case you are not up with this term, dollar cost averaging means buying a stock at a lower price than you bought it at in the past to lower the overall average price of securing the stock.

Be careful!

A lot of financial planners nowadays are trying to tip clients close to retirement into adventurous share portfolios, even asking them to borrow money to turbo charge their portfolio’s returns. They advise clients to buy when share prices fall, which can be a bit harrowing for retirees. This is a high-risk strategy when markets have been rising strongly for four years.

What worries me …

Mind you, it’s the borrowing bit that worries me the most at this time, not the buying of shares for a retiree’s portfolio. As we are living longer, retirees have to invest with the idea that they might have to manage their wealth for 20-25 years.

Get smart
It means that it is wise to become an investment expert or be smart enough to get one on your team.

An old investment cliché says that it is time in the market and not timing the market that is important. And you should be working off a 5-10 year program to make money.

My take on the markets

I subscribe to this, to an extent, but I like to time my entry so I don’t buy too expensively. So for those underweight stocks now, it might be wise not to go overboard on high growth stocks right now. Frankly, property looks to be the next investment asset to have a better period as prices are quite attractive.

By the way, as I don’t expect a crash soon, there are certain types of shares that are appropriate to buy at this stage in the cycle, with defensive shares such as consumer staples and healthcare stocks regularly singled out at these times.

I also like to watch the stocks that rise when the market is sold off strongly. This can be a good sign for the future.
Sit back and relax

The point is, if you take a longer-term point of view and you buy good assets – shares and property – at the right time and then sit, wait and watch them grow, you should be able to manage your wealth professionally.

The market might make you wrong in the short-term, but in the long-term, well-bought good assets will deliver.

Published on: Friday, March 02, 2007

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