This Share Market Rally Has Angered Some Investors

‘”Mate, I haven’t had two brass razoos to rub together in about four years,” said one broker, from Bell Potter. “No sign of a bonus, no brokerage, but the last two weeks have been great, so it’s time to enjoy the good times again.”‘ – The Age

The phrase ‘off to the races’ springs to mind.

The Australian share market closed last Friday at 4,921. That’s just 81 points below the 5,002 target we had predicted for the end of the year close.

In short, the bull market has begun. And we’re afraid to say that so far a lot of investors have missed out. We know that, because a lot of people are emailing us to say so.

If we know anything about stock markets, it tells us one thing – this bull-run could last a while longer yet…

To be honest, we’re a bit skeptical about that broker story from the Age. But even so, it still confirms something we’ve seen many times before in bull markets.

That is, when the share market is at its most scary, many investors are too afraid to put their money on the line and have a punt.

They’d rather keep it all in cash…all in fixed interest investments…or all in gold.

As you know if you’ve read Money Morning for some time, that’s a terrible approach. Since mid to late 2011 we’ve advised you to actively allocate your assets to different asset classes.

We’ve told you to first of all split your wealth into ‘safe money’ and ‘punting money’.

The ‘safe money’ you stick in a combination of cash, term deposits, gold, and dividend-paying stocks.

With your ‘punting money’ you have a crack at trading a blue-chip growth stocks (perhaps using leverage) or our favourite, small-cap stocks. Of course, there are other ways to use your punting money, such as options, futures or CFDs.

Why You Need to Own Stocks

But really, it’s up to you how you do it. If you don’t have the time to trade stocks, then small-caps make a lot of sense because you’re typically in them for at least six months. If you’ve got a bit more time to devote to investing, then trading shares, options or futures might be your thing.

Despite that, it seems some people think, just because we don’t suggest you put 100% of your money in shares, that we’ve cost them money by telling them to sell all their shares.

That’s the last thing we’d do. Sure, for the past year or so we’ve warned that the market is risky…and that you might even want to think about short-selling some stocks.

You can hardly blame us when the chart of the S&P/ASX 200 looked like this for the first nine months of last year:

S&P/ASX 200:January to September

S&P/ASX 200:January to September


Source: CMC Markets Stockbroking


Of course, after a brief slump in October and early November, the share market took off. And since then it has almost been a non-stop bull market rally.

The great thing is if you’ve followed our ‘safe money’ and ‘punting money’ asset allocation approach, you should have some good gains in your investment portfolio since last November. And the even better thing is that you should have made a good portion of those gains not with your ‘punting money’ but with your ‘safe money’.

When you buy dividend stocks, you’re hoping for a 5% or 6% dividend yield. Any capital gain is a bonus. But over the past three months, depending on which dividend payers you own, you may have collected a 3% dividend (half the annual dividend yield) plus 10%, 15% or 20% in capital gains.

But that brings us back to the reason why we’ve got a feeling this rally could keep going. As we mentioned, we’ve gotten plenty of emails from folks saying they’ve missed the rally…

This Stock Bubble Looks Like a Housing Bubble

To those people we say this: don’t get mad, get active…follow the advice we’ve given. You shouldn’t put all your cash in the stock market, but as we’ve said for a long time, you should have some exposure, whether it’s with your ‘safe money’, your ‘punting money’, or both.

Even more important than that, our guess is that millions of Aussie investors missed out on the three-month share rally. And as the stock market has continued to climb it will panic many of those investors into piling into the market for fear of missing out on further gains.

It’s a short-term version of what happened in the Aussie housing market over 15 years between 1995 and 2010…the higher Australian house prices went, the more people borrowed and bought. That created an asset bubble (the biggest in Australian history), and there’s a real chance that this could be the early stage of another share market bubble.

That’s another reason why we’re sticking to our ‘safe money’ and ‘punting money’ strategy. Because just as those millions of investors missed out on the share rally, we can almost guarantee that when they do pile into the market they’ll do so with everything they’ve got.

And when the share rally ends and the bubble bursts, we’ll guarantee something else…they’ll send us an email blaming us for their losses!


PS. It wasn’t just our opinion that investors should have an exposure to stocks. Last November our old pal Dan Denning told his Denning Report readers to buy a particular stock. He told them, ‘I’m making this recommendation out of modesty. We can never know what’s going to happen. This is part of the thinking behind the Permanent Portfolio. Have some money in each of the major asset classes to hedge against what’s unknown. Review, rebalance, and repeat.’ You can find out more from Dan here

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Money Morning is Australia’s most outspoken financial news service. Your Money Morning editorial team are not afraid to tell it like it is. From calling out politicians to taking on the housing industry, our aim is to cut through the hype and BS to help you make sense of the stories that make a difference to your wealth. Whether you agree with us or not, you’ll find our common-sense, thought provoking arguments well worth a read.

Money Morning Australia is published by Port Phillip Publishing, an independent financial publisher based in Melbourne, Australia. As an Australian financial services license holder we are subject to the regulations and laws of Corporations Act and Financial Services Act.

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