…and now folks, it’s time for something completely different….I hereby hand the mike to Mr Lycra himself, the voice of reason, my husband Rory. Take it away big guy….SL
So Sara has asked me to write a little blurb.
What do I know anything about? Golf. Cycling. Kids. Stock markets. I figure she has done a pretty good job already writing about the first three [thanks Dude – SL], so I’ll have a crack at saying a few things about the stock market, having worked in it for twenty-five years now. No advice here, just my thoughts, ok?! [Ok Rors, my readers are smart, they know not to treat what we write as advice – SL].
Sara will you back off? [You’re on my stage and I’m a little nervous, but OK I trust you – SL]. How about I try and give a little summary about what went on in the stock-market in the first couple of weeks of this year, and what it might mean for the rest of the year?
1) The power and ignorance of the media
Aussie shares have been pulverised. Why? Well, when people whether credentialed or not, are given free rein to write such pieces in the media as “Sell everything!” or “Prepare for Armageddon!” it tends to scare the crap out of more than a few people out there, so they panic and sell their shares.
Should they be allowed to write it? Everyone is entitled to their view in my opinion, and if radical headlines bring readers to their site/paper, then publishers will run with it. Nothing new there, I hear you say. But should you act on it?
If you base your investment decisions on what you see in the press, written by someone you probably don’t even know, who might well be writing it to get their name up in lights rather than actually caring about your wealth, then perhaps you shouldn’t be making stock market decisions in the first place.
2) Everyone needs a holiday
Fund managers, who control your superannuation and other savings you give them to invest, represent most of the money flow in the market and their decisions drive prices up and down. They’re human and take holidays just like the rest of us.
Which is fine and holidays are probably a rather good idea, but it’s important to remember something at this time of year. While they’re away, they leave their portfolios with the youngsters who cover their desks over Xmas while peering through a dirty great ‘don’t touch’ sign over the computer screen. So, when scary stories appear in the media, and retail investors start panicking, stock prices will inevitably move more than normal, (aka volatility) as a result of less liquidity flow, because all the big movers and shakers who buy up all the spare stock (fund managers) are on the beach in Hawaii and their off-siders have their hands tied behind their backs.
Last week was the big swingers’ first week back for the year. And what happened? They saw plenty of good companies trading at silly prices, because the not-so-clever people had panicked and sold out of their positions, and bought them all back. Remember, fund managers spend their entire working weeks digging deep into what makes various companies make money, and how they should be priced to reflect their value. They know more than the average retail investor about companies and pricing.
So the retail investor investor/fund manager push/pull, or buy/sell dynamic playing out is a big part of why we saw the Aussie market finally go up again last week – call it ‘sanity prevailing.’
Yes the oil price fell by about 20%, and so companies that make money by selling oil have been rightfully hammered (lower oil price = less sales $$ obviously), but has the Coca Cola company whose price has also been hit hard really changed that much in the last three to four weeks? Or Lend Lease? Or Macquarie Bank? Really? Of course not; unless you know something I don’t.
3) Woolies gets knocked around by hammers and nails
On the other hand, you probably saw Woolies are ditching Masters, their foray into the hardware industry. Good move I say! Investment rule 101, stick to your bread and butter, and for Woolies, that really is bread and butter not hammers and nails! It cost them about $1b in losses to realise it, hence the share price collapse over the last year. Once they find a decent CEO, perhaps their share price will recover some of the losses.
Better stop there, as I think I’ve exceeded the word limit Sara gave me, but hey, I get excited writing about this stuff!