The week that was proved two things to me and I recommend you note this in your mental investment diary. First, the stock market is driven by a group of short-term nut cases. Second, always remember that you’re different – a long-term wealth builder – and if you’re not that, then apologies for my earlier insult.
I’m often asked about how I invest and what I invest in, so I will sum it up succinctly. I buy great companies that generally pay good to great dividends that are made to look even better, thanks to those lovely franking credits. I invest inside an SMSF to maximise those credits and I’m over 55 and on a transition to retirement pension to ensure the lowest, legal amount of tax. If you’re over 55 and not doing this, then you’re possibly as crazy as those short-term traders, who sold off when the Fed boss, Janet Yellen, made her rookie Chairman mistake alluding to an interest rate rise around mid-2015.
Right now, I’m fully invested in Aussie stocks, as the best time to be in foreign ones was when the Oz dollar was at 110 US cents. I think our stock market has more catch-up upside. That said, I have no problem with foreign exposure, though those talking it up now are a couple of years late. If I were going to invest overseas, I’d do it with a fund manager, who can pick the best companies.
Three years ago, when everyone was scared about overseas stock markets, I used to invite Chris Selth from Five Oceans Asset Management on my TV show. Chris was picking the best companies in the world. It seemed like a courageous strategy then, but it worked a treat.
Generally, I’m 100% fully invested in stocks, as I’m not worried about a major sell off. And if a sell off happened, I’d buy more of the companies I like because they’re companies I like, and they’d then be at better prices. I’m investing on the assumption that I’ll be around for a while and one day I’ll become more scared (or conservative). And that’s when I’ll change my strategy but you guys will be the first to know when I’ve given up on my “this is a buying opportunity” stance, which I often shove down your throats.
In case you’re wondering, we have a small part of our portfolio where we have a punt on speculative stocks, such as Freelancer.com but that’s because we don’t mind being nutcases for a bit of fun and because companies like Xero do come along, which can defy the analysis of sensible people like Roger Montgomery and Geoff Wilson! But our nutcase punting is very small beer in our overall portfolio.
My overall investment attitude is determined by the greatest chart of all time:
The Vanguard team shows that 1970 and 2009, $10,000 invested in a portfolio, which does at least as well as the index, becomes around $453,166, despite six crashes (to very serious slumps) and countless corrections. Maintaining the faith, along with the magic of compound interest, convinces me that well selected stocks are a great investment.
By the way, on Thursday when our market sold off by 61 points post-Janet and her rates remarks, I argued in my Switzer Daily (www.switzer.com.au) blog that, eventually, the short-term trade reaction would be trumped by the smarties, who’ll say: “You little beauty, it’s time to buy companies leveraged to an improving US economy.”
I don’t doubt we’ll have plenty of negative moments this year but I still think the upward trend of stocks will continue. So it’s a year of buying opportunities. In fact, another expert gave my 6000-call on the S&P/ASX 200 some support, with CommSec’s Craig James tipping the index to finish at 5700-5800 this year.
Baby boomer’s housing defence
James also points out: “Gen Y has no reason to blame parents or grandparents – home affordability hasn’t really budged in the past decade. Home prices may be up, but so are disposable incomes.”
Apparently, the Rismark Housing Affordability measure indicates that home prices stood at four times household disposable income in the December quarter – a figure broadly unchanged on a decade ago. Over the past decade, disposable income per household has risen around 70%, while the average home price has lifted around 67%.
Captain Courageous’ call
I, (and I guess Stuart Grimshaw, CEO of Bank of Queensland), would have loved Charlie Aitken’s call on BOQ because he believes in the East Coast recovery story. Others have doubts about the company after a terrific run, which most of you know we tipped strongly. I did note, however, the economic comeback of the northern state in recent crucial data. Also, property expert Margaret Lomas is in the cane toads’ camp, as the state with good value written all over it, though she did warn about apartment oversupply along the river and around the CBD in Brisbane. So pick the right areas. (My interview with Margaret is on the Switzer Daily website.)
Smartest take for the week
“Climbing this wall of worry is a good thing. If everybody was in, and everybody felt good about it, it would probably not be a good time to get in,” said Vern Sumnicht, CEO of iSectors, to CNBC. “There’s not much room for the market to go up in the next couple of years in the multiple but it will go up because of the earnings of the companies themselves – they’re doing well.”
And that’s why I (and this Switzer Super Report) watch the economic data and the earnings reports – they’re like a crystal ball!
Top stocks – how they fared
Numbers that moved the market
It was a quiet week for indicators locally, but over in the US, Janet Yellen committed to $10 billion less purchases of securities (that is, tapering of QE3), and indicated interest rates could rise some time in 2015. Her ‘6 months’ line implied April/May 2015.
The New York factory index (or Empire State Manufacturing Survey) increased from 4.48 to 5.61, which was seen as a nice move, given the weather.
And the Philadelphia Federal Reserve’s manufacturing index rose to 9 from minus 6.3.
The week ahead
Australia
March 25 Speech by Reserve Bank official
March 26 Speech by Reserve Bank official
March 26 Financial Stability Review
March 26 Speech by Reserve Bank Governor
March 27 Population figures (September quarter)
March 27 Financial accounts (December quarter)
Overseas
March 24 “Flash” China, US, Europe PMIs
March 26 US Home prices (February)
March 26 US Consumer confidence (March)
March 26 US Richmond Fed survey (March)
March 27 US Economic growth (Dec quarter)
March 28 US Personal income (February)
Locally the Reserve Bank has a lot to say with three speeches next week, while on Thursday we’ll see the financial accounts. Heading overseas, we get a read on manufacturing activity with the “Flash” China, US and Europe PMIs on Monday, then US consumer confidence on Wednesday. And on Thursday, US economy watchers will be looking out for the US economic growth figures for the December quarter.
Keep an eye out for articles from FIIG Securities’ fixed-income guru Elizabeth Moran who will be contributing weekly to the report on Thursdays.
Calls of the week
Paul Rickard believes there is sill value in Leighton up to $20.00 and so will be patient and won’t sell now.
In this week’s Fundie’s Favourite, Domino’s was Manny Pohl’s pick for top stock, citing the fact that it still has some stores to roll out and that it could be awarded more master franchise regions.
Charlie Aitken said he thinks Bank of Queensland can generate another 15% total return this year, calling it a “classic East Coast recovery play”.
Plus, have a look at this from the Reserve Bank’s March meeting minutes. We suspect the central bank is saying the media talk about job losses is a beat up, but you make what you can of this statement:
“Members noted the recent high-profile announcements of future job losses against the backdrop of the 400,000 to 450,000 people who leave employment each month and the similar number who take up employment. They discussed the potential for the extensive coverage of these job losses adversely to affect consumer confidence. At the same time, there was evidence that forward-looking indicators of labour demand had stabilised, following earlier declines to low levels.”
And finally, Paul Rickard, Steve Price and I interviewed Arthur Sinodinos on 2GB the day before he stood down from his role as assistant treasurer, and Steve didn’t mince words, asking: “Would you have made $20 million out of that company?”
Food for thought
“One of the greatest pieces of economic wisdom is to know what you do not know.” – J.K. Galbraith’s observation was an inspiration for the Switzer Super Report.
Last week’s TV roundup
This week I asked Gary Stone to run his charts over a few retail stocks. He also explains why he is still fully invested!
Margaret Lomas share her top tips for property investment. Don’t miss these.
On Wednesday night, I spoke with star stock picker Charlie Aitken from Bell Potter, and also asked Marcel von Pfyffer for his views on Europe and what it means for the Aussie economy and stocks market.
Plus Paul Rickard and I looked at one of his favourite stocks market sectors: healthcare.
Stocks shorted
ASIC releases data daily on the major short positions in the market. These are the stocks with the highest proportion of their ordinary shares that have been sold short – which could suggest investors are expecting the price to come down. The table also shows how this has changed compared to the week before.
Source: ASIC
My favourite charts
As we pointed out in this week’s Switzer Super TV video, Ramsay and CSL have risen significantly over the past 10 years, with the GFC hardly even affecting Ramsay!
Source: Yahoo!7, Data as at 14 March, 2014
Top five clicked on stories this week
- Peter Switzer – Profitable Dirty Harry moment to buy BHP and Rio
- Charlie Aitken – JB Hi-Fi best discretionary retail pick
- Rudi Filapek-Vandyck – Buy, Sell, Hold – what the brokers say
- James Dunn – Potential M&A targets to buy
- James Dunn – The value to be found in mining services
Recent Switzer Super Reports
Thursday, 20 March 2014: The sun also rises…in the East Download
Monday, 17 March 2014: Do you feel lucky? Download
Enjoy the weekend!
Peter Switzer
Founder and publisher of the Switzer Super Report
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.
