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Markets have always recovered strongly

Discussion in 'The Economy' started by Andrew Newman, 6th Apr, 2009.

  1. Andrew Newman

    Andrew Newman Well-Known Member

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    Hi

    An interesting graph from Fidelity Australia shows, for the first time in 35 years, the 3 year annualised return from the Australian sharemarket was negative for the 3 year period to the end of 2008. This is only the third time this situation has occurred in 100 years; with the previous two clusters of underperformance being 1973-4 and the 1930's Great Depression. After both these periods, the market produced significant gains.

    While it is difficult to say when we will reach the market bottom or if we already have, it is possible to say that shares are inexpensive by all measures and investors need to be aware of the potential upside which has historically existed immediately following a market low.

    The graph can be viewed at my blog:
    Markets have always recovered strongly - Blog - CMP Financial Planning Pty Ltd

    Kind Regards
     
  2. Chris C

    Chris C Well-Known Member

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    They also need to be aware that during the downturn that followed the 1929 crash there was a bear market rally that yielded a 60% return before the DOW crashed again ultimately finding significantly lower bottom.

    I'm not saying we haven't found a bottom (even though at this stage I believe we haven't) but I think those thinking of investing at this stage should consider that it is still fraught with risk given that Australia is only just entered a recession and there is still a lot of uncertainty at this stage. So the risks that markets may fall significantly lower need to be weighed against the risk of missing out on the "strong recovery".
     
  3. Andrew Newman

    Andrew Newman Well-Known Member

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    Hi Chris

    Your last comment is so true.

    One point to keep in mind though, is that you would rather be buying quality stocks today (many at half price) than buying them in November 2007 when the Australian share market was peaking.

    Kind Regards
     
  4. Chris C

    Chris C Well-Known Member

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    Now all we need is a crystal ball to properly apportion the risk and we will be rolling in it...

    :rolleyes:

    Whilst I definitely understand your point, I still worry that just because something is half price today compared to yesterday, doesn't mean it will be considered good value tomorrow.
     
  5. AsxBroker

    AsxBroker Well-Known Member

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    Though for something to be good value it doesn't have to be half-priced. Certainly an investor should always be looking to invest in quality assets at good prices. An investor should try to avoid buying low quality assets at any price.

    The simplest way of doing this is keeping an eye on P/E ratios and indicative yield for stocks (keep in mind that these are lagging indicators based on past earnings and dividends being paid).

    Cheers,

    Dan
     
  6. cheeyeen

    cheeyeen Member

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    I actually like what our portfolio manager said six months ago about missing out the potential big gain. Not an exact quote, he was saying "In bad time, I could be missing out the so call big jump by staying off the market but I have avoid the big fall. Most of the time the big jump barely recover the loss that was incurred". After a 20% run recently, ASX200 is still not back to 4000 yet.:).
     
  7. Rob G.

    Rob G. Well-Known Member

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    Given Rudd & Swan's crystal ball could not even see that we were in a recession until recently, the good news is that they have picked the bottom of the market just after the end of the next budget.

    They have carefully polished and honed their crystal ball to predict the market will swing positive again in the year following the budget coming due.

    This ends what would otherwise be a bleak forecast (i.e. 1 million unemployed by the end of next year's budget) on an upbeat note. Just about the time for the next election.

    Given the incredible precision of their new financial projection tool, I am really interested to see how they factored in the effect of Ken Henry's major Taxation revue on my financial health as well.

    You have got to hand it to these guys, they have more spin than the myriad glossy company reports that I have to wade through to try to make an objective investment decision.

    Does anybody audit their projections ?

    Cheers,

    Rob