If you are an investor, it is easy to understand that you may be a little nervous about the current market conditions. Further, since the GFC I know many are quite frustrated about returns in both their managed funds and direct shares, but the news is not all bad. The 14th edition of the annual Australian Stock Exchange (ASX) report prepared by Russell Consulting, tells us that shares have outperformed other asset classes over the past twenty years. Obviously the results of the past few years show a different story, with the return on shares below that of cash, but one thing these figures do tell us is to not get hung up on the short term. Let me explain…
All too often investors take a reactive short term view and for the most part this is detrimental to achieving above average returns. It is a well-known fact that the majority of investors tend to enter an asset class after it has achieved good returns and exit long after it delivers poor returns, whereas the wise investor does the opposite. Over the past few years cash has been the best performing asset class, which means the time to invest in cash has come and gone. Right now is the time to look for the next best investment, and that is shares. I am confident when I say that if you take a long term view and get into some good quality Blue Chip shares you will be exceedingly happy in five years. Why? Because the majority has sold to go into cash and shares continue to be the best performing asset you can own over time.
Whilst I don’t want to ring a bell that alerts everyone to the market bottoming, at least short term, the signs this week are certainly there. You may remember that I was suggesting how our market would rise into late May or early June prior to the next decline, however it turned down very early, in fact two to three weeks early. Well the opposite could be happening now in that again the market may be turning back up two to three weeks earlier than expected. That said caution still needs to be exercised as we cannot confirm the upward move is really underway as we first need to see the market break above the 4200 point level in the next week. If this occurs then I expect we will see a rise through to 4300 points and possibly higher in the next month.