Just a quick reminder that this will be the last Money Morning for this week. Normal service will resume on Monday when we return to the Fitzroy Street office from our break.
Then you’ll start receiving your usual commentary from your editor, plus expert analysis from Slipstream Trading editor Murray Dawes and Diggers & Drillers editor Dr. Alex Cowie.
But until then, as you can see from the chart below…
It’s always hard to know how seriously you can take these low volume rallies.
Put it this way, it doesn’t do the fund managers – or you – any harm for them to push up stock prices on low volumes. A higher share price means better returns for the fund.
You don’t need to be Stephen Hawking to figure that one out.
Take a look at the three-month chart for ANZ Bank [ASX:ANZ] as a perfect example.
Since early October nothing has been able to convince investors to buy ANZ Bank shares. The share price has fallen by nearly 20% during that time.
Then suddenly, on a couple of low volume days between Christmas and New Year, a few investors ‘see the light’ and decide ANZ Bank is great value.
And what better time to buy than when sellers are thin on the ground and any buying pressure is likely to shift the share price sharply higher.
Yeah, I know, this isn’t news, it happens nearly every year.
The question is whether this remarkable few-day rally can hold up into the New Year when the work experience kids are shoved aside and the big boys take control of the buying and selling again.
And look, I’m not just picking on the banks. Take a look at the BHP Billiton [ASX:BHP] or even the chart below for Woolworth’s [ASX:WOW]
Even dull old Woolworth’s has put in a decent little spurt over the holiday period.
But this is where you need to tread carefully.
Sure, this market could take off over the next few weeks. I mean, it’s not difficult to be bullish when the sun is shining and investors are feeling nice and relaxed.
However that’s exactly the reason you need to be cautious. I don’t mean that you should go out and sell your entire share portfolio, but I do mean you should consider protection strategies for your portfolio.
One of the easiest is to use ‘trailing stop orders’, and actively manage your portfolio.
It’s something I’ve recommended to subscribers of Australian Wealth Gameplan and Australian Small Cap Investigator.
As I mentioned yesterday, the fund manager propaganda machine is warming up the engines already. They’re out there talking about ‘time in the market’ rather than ‘timing the market.’
In other words, as a retail investor you should just hand over all your cash to the fund managers and let them look after it for you – so you can get a 49% return over ten years! That’s 4% per year if you recall from yesterday.
That’s not even enough to keep pace with inflation.
Don’t fall for it is my message.
But even if you can’t be bothered doing the research into blue chip shares, or if you think you don’t have what it takes to ‘pull the trigger’ to buy and sell a bunch of shares, believe me there is the lazy option…
I’ll be honest, this isn’t my preferred method of investing. But it sure does beat blindly handing over your hard earned cash to the cowboys on Collins Street and Martin Place.
If you haven’t figured it out yet I’m referring to something called Exchange Traded Funds (ETFs). In the US market these things are huge.
On any given day two of the most traded ‘stocks’ on the US market are the ETFs that cover the Nasdaq 100 [NASDAQ:QQQQ] and the S&P500 [NYSE:SPY].
In Australia your choice of ETFs are limited. There’s less than a couple of dozen. The most actively traded is the ETF that covers the main index, the S&P/ASX200 [ASX:STW].
In a recent special report for Australian Wealth Gameplan subscribers I outlined a number of other ETFs that investors could consider. Depending on the asset class you’re interested in.
When the S&P/ASX200 ETF first appeared on the Australian market there was very little interest from investors. But now, even on a low volume day like yesterday, more than $16 million worth of shares changed hands.
On a usual day you can expect five or six times that volume. And quite often more than that.
For a retail investor that’s enough volume to ensure you’re able to trade in and out of the stock as you please.
I won’t go through the full details of how ETFs work, but in a nutshell it’s similar to a managed fund. The fund manager holds the equivalent number of shares in the fund according to the weighting of stocks held in the index.
You can then buy and sell shares in the ETF in exactly the same way as you buy and sell shares in ANZ Bank, Woolworth’s, BHP Billiton, or any other stock.
As I say, this isn’t my favoured way of investing, and it isn’t perfect. But it sure makes more sense to take advantage of the range of ETFs and make more of the investment decisions for yourself rather than handing your money over to a fund manager so they can do exactly the same thing, only they’ll charge you a whacking great fee for the privilege.
But whether now is the best time to buy into an ETF that tracks the Australian stock market is another matter.
There’s still a lot that’s wrong with the Australian economy. It’s plain to see where we’re standing that rather than fixing the problems, government and regulatory action has simply covered things up.
They’ve thrown a great big tarpaulin over it and then recruited the mainstream press hacks like Michael Pascoe and Ross Gittens to tell everyone to “Move along, there’s nothing to see.”
Take the latest news on Australian debt levels which now stands at $1.4 trillion. That’s more than the output of the entire Australian economy. Australians are spending more than they earn.
At some point the consequences of excessive debt and economic manipulation will have to be confronted. Contrary to what many people believe, governments aren’t able to postpone the effects indefinitely.
All they can do is postpone them temporarily.
But I’ll have more on this next week.
That’s why, as an investor it’s important that you take responsibility for your investments. Investing doesn’t have to involve hours and days of endless research. Even the laziest investor can reduce fees by using ETFs rather than traditional managed funds.
So, if you think the Santa Claus Rally will turn into a New Year Rally then go for it. But I strongly suggest you keep an eye on your portfolio and use trailing stop orders to minimise some of your downside exposure.
That’s especially the case if Santa’s Rally stalls.
Cheers.
Kris.
{ 5 comments… read them below or add one }
Just done a quick scan of the net, and I couldn’t find the $1.4 Trillion figure anywhere. ABC & SBS are quoting $1.2 Trillion. see here: http://www.abc.net.au/rn/breakfast/stories/2009/2781345.htm and here: http://www.sbs.com.au/news/article/1159542/Australians-set-new-debt-record
Not that a $200 billion difference really matters with numbers this large, but I’m curious as to where the source of the $1.4 Trillion figure comes from.
I’ve also just scanned the December RBA chart pack and on page 22, the “Credit – Ratio to Nominal GDP” stands at approximately 1.6, which for a $1 Trillion economy, would make total credit/debt stand at $1.6 Trillion.
Too many break downs merely serve to obsfuscate. I’d love to know the total debt levels of all entities: individuals, households, local, state & federal governments. My little mind thinks that adding all of these up would show debt levels well beyond what has been disparately reported via break downs.
I found this on Bloomberg – i wonder if its true.
“In Beijing’s Chaoyang district, which represents a third of all residential property deals in the capital, homes now sell for an average of almost $300 per square foot. That means a typical 1,000-square-foot apartment costs about 80 times the average annual income of the city’s residents.”
http://www.bloomberg.com/apps/news?pid=20601109&sid=arp0XyPoRxW0&pos=10
in tokoyo it went to $93,000 per square foot
yes $93,000 which plummeted to less than ,todays prices ,1% of that worth
and its caused japans 1990′s lost decade,
totalling 20 years of financial damage which still hasnt recovered today
etch – your article shows the upper end but the bloomberg article i think is referring to lower end of the market
The article below shows Nakajima wanted to buy a 1080 sq foot apartment for $600,000. Thats roughly $600 per square meter.
http://www.nytimes.com/2005/12/25/business/yourmoney/25japan.html?pagewanted=print
Now for the dangerous part. The article below states that the average income in Japan at the time was $21,000. That means property was selling for about 28 times income. The Bloomberg article shows Chinese property is selling for 80 times income….. Oh Dear!!!!
http://www.nytimes.com/1989/12/18/business/international-report-japan-outpaces-us-in-income.html?pagewanted=1
To put it into perspective in Australian terms our average property price would have to be
at 28 times income $1,680,000
at 80 times income $4,800,000
seems at bit high to be realistic