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I have heard about something called an investment clock, which tells you when it is time to invest in shares, property, etc and when it is wise to get out. Could you explain it to me and tell me what time it is?

The investment clock has stood the test of time as an approximate measure of when and when not to invest but it’s not 100 per cent reliable. And, in reading the time, there’s a bit of subjectivity required to work out the time.

Imagine a clock and we will work our way around the face. At 12 o’clock, it’s ‘boom time’ and both shares and property prices are going gangbusters and at one o’clock interest rates are rising to the top of the cycle. By two o’clock, share prices start to fall and even crash and by three o’clock, commodity prices are sliding. Four o’clock brings falling international reserves as trade is slowing up and by five o’clock real estate prices are giving in to gravity. At six o’clock negativity has taken over everywhere and recession hits and the central bank, by seven o’clock, cuts interest rates to fight the recession.

By eight o’clock, the value hunters who have some courage and can see great companies at good prices start to pick up these companies, pushing share prices up. Then at nine o’clock, optimism that the recession could be nearly over and commodity prices such as oil, coal and iron ore, all critical for economic growth, start rising. Overseas reserves start to rise by 10 o’clock and therefore trade surpluses start to replace trade deficits. By 11 o’clock, property prices start to rise again and we’re heading towards another boom at 12 o’clock.

So what time is it now? Well, you can forget any time between 12 and six as we’re not in a boom and we, as well as the rest of the world, have beaten the recession blues.

Share prices have already started rising and so we’re past 8 o’clock and commodity prices have risen with oil surpassing the US$80 level this week. And locally we have racked up the biggest trade surplus in our country’s history in June with a result of $3539 million!

Finally, real estate prices have already started rising and are levelling off right now, though my property experts on my Sky News Business Channel program expect three years of rising house prices.

And this is where the clock gets fuzzy and non-precise. I would argue we’re in the nine to 12 region and the length of time we’re there before a boom takes hold should be longer than the period after the tech bubble was pricked in 2001.

That’s why I like to be a long-term investor in shares and I think the time to buy is OK now and the boom won’t be here until we at least go back to and past the old all-time level on the S&P/ASX 200, which was 6,828.7 in November 2007.

The one thing to understand, in special circumstances, the boom could take five years to come or it could be two years. The severity of the financial system’s collapse and the amount of debt governments have taken on to fix the recession means it could take a long time to get great and sustained economic growth globally and that could restrain share price growth. The investment clock’s inevitable advancing of time has stood the test of time, as I have already punned.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

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 25, 2010

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