Beware of the negative experts

Founder and Publisher of the Switzer Report
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Recently I watched a rival’s business program and it started with the possible doom of a Europe-created worldwide recession. It then went to a group of experts, where two out of three were either tipping economic and market Armageddon or were praising the existence of a negative economist among all of the positive ones out there!

One of the guys, who was forecasting a scary day of reckoning for the global and the local economies as well as stock markets worldwide back in December 2008, was still pedalling the same story! He will be right one day.

Ironically, this guy ran this argument on an ABC news program and I was arguing the case that I thought Australia could miss a recession – unlike the rest of the world, minus China – while on the stock market front, I was advancing my ‘muddle through’ argument that many of you would have seen me put forward many times before.

Interestingly, there was another guy supporting me in this debate and that was Lonsec’s Michael Heffernan, who is a regular on my SWITZER program on the Sky News Business channel.

I’ll be nervous when…

Believe it or not, there will come a day when I will tell my readers that I’m nervous and that if you are too, then going to cash might be sensible. It will be when interest rates start to rise, and that’s not happening now.

Of course, I think a short-term pull-back will be on the cards until Spain asks for a bailout, the US election is over and the US ‘fiscal cliff’ of tax hikes and spending cuts has been averted. Both these issues have me short-term nervous, but there is no Armageddon scenario playing out in my head.

Most of my favourite experts on my program got the ‘sell in May and go away’ right and they went positive in June, but they are now expecting a pull-back into December, when another rally is expected.

Buying opportunity

We’re now looking at another buying opportunity, but I don’t think it’s the start of a big sell-off. As I say, one day the ‘doomsters’ will be right and I’ll be looking out for it, but you must remember that if you had listened to the negative ‘experts’ out there and went to cash after Lehman Brothers failed in late 2008, you would have missed out on the 42.7% recovery of stock prices since 6 March 2009. Divide this by 3.5 years and that’s a capital gain of 12.21% a year! If you had dividends of, say 5%, you would have made 17.21%; and if you were a retiree with a self-managed super fund, then you would not pay tax and would be a about 2% better off via franking credits and a tax refund.

So that’s nearly a 20% a year penalty for accepting the negative news from experts.

By the way, if you had selected the four big banks, Telstra and a few other great dividend payers as a safety strategy, you would be even better off!

Paying dividends

In December last year, Paul Rickard and I put together an income-based portfolio for the Switzer Super Report and we started with $100,000 and in that time the capital gain was $8,252 by the end of August and so we have to add in the September gain. And with only half-a-year of dividends the gain was $4,037. All up, that was a boost to the portfolio of around 12% with more dividends to be added in!

History is on the side of stocks and positivity and while history can be overworked and over relied upon when it comes to investing, it sometimes is more reliable than a media ‘expert’ who has cut his teeth on an old newspaper maxim of ‘if it bleeds, it leads’!

Short story

We had a potential client who had about $6 million to invest and, before we met him, he had lost a lot of millions in the hands of himself and some misguided brokers. He had taken to reading negative commentators and was still scared a year or so ago.

He stuck with term deposits and made about $360,000 on his $6 million and that’s why I didn’t fight him on his strategy, but if he had opted for our dividend play, he would be up over $1 million.

It’s a big price for being scared by negatively programmed media people and those who are always negative.

Remember, one day I will turn negative, but it’s not now, with quantitative easing (QE) and China’s export figures coming in double expectations over the weekend.

Important: 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. Consider the appropriateness of the information in regards to your circumstances.

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