I was re-reading our September post on Investing Updates – and I thought this needed to be said again:
No-one can, or should, attempt to predict the future. Stick to the fundamentals and don’t get carried away by the hype. ‘A rising tide lifts all ships’ – but don’t be one of the dead fish on the sand when the tide goes out!
It was all green on my watchlist in September. It was also dividend month. We were told the NSW lockdown would soon be over and we could finally look forward to being free again. No surprise I hated updating the September share table last Friday, with some of our stocks in the red … but at least we had more greens!
Sam Sherry contributed to this post, and here’s our updated share table for December:
In early November, there was talk of inflation. Would interest rates go up? The Reserve Bank in Australia kept us wondering. Investors were spooked, and tech stocks especially began to move downwards.
The silly part of this was that even if interest rates were to increase, it would not be more than half a percent and likely even less – hardly enough to significantly affect company fundamentals. More likely, the interest rate uncertainty (i.e. if, when and by how much rates would increase) was just an excuse for investors to sell stocks that analysts believed were already over-valued.
There was more bad news on 26 November, with concerns about yet another virus variant dubbed ‘Omicron’ circulating in southern Africa. Of course, the media had a field day:
Investors wiped $41 billion off Australian shares, the Aussie dollar and industrial commodities dropped and bond yields dived as Covid worries spooked global markets … Travel stocks pummelled by Covid variant. (The Australian, Friday 26 November)
Omicron now dominates the news media, with medical experts giving alarming statistics, more needles stuck in arms (this time in South Africa), and stark graphics. But as for its likely impact, we simply don’t have enough conclusive data. While Omicron appears to be more transmissible, there’s no evidence (so far) that it causes more severe illness, or that it will be able to evade the vaccines. But having said that, this does not mean it’s of no concern; we don’t know, for instance, if we’ll have to wait longer to enjoy quarantine-free travel again – and this will certainly affect the economy.
Unsurprisingly, the market’s initial reaction to the news was negative, as investors adjusted their expectations in response to the new information. As we learn more about Omicron in the days and weeks ahead, watch how investors revise their expectations!
I have lived through several market crashes and recessions. Here are some valuable lessons from each of them that I’ve applied to every aspect of my life:
- Don’t borrow more than you can repay. Likewise, in your business or personal life, don’t commit to anything before you have time to think about it.
- Invest long-term in stocks that consistently generate profit and have good growth prospects. By having a long-term perspective, short-term price fluctuations become less important than the general direction in which the company is heading. Similarly, remember that everything you do to enhance and improve your knowledge, creativity, or emotional and physical health takes time. Rewards always come.
- Diversify. Sam’s recent post ‘All About Options’ explained how options can help us hedge our bets. But we don’t all have to become option traders to do this, as there are other strategies we can apply to protect ourselves from uncertainty: simply look at the economy around you! For example, if you’ve previously bought Qantas or Flight Centre shares anticipating a pick-up in the travel industry, you can protect yourself by picking alternative stocks such as pathology company ACL (Australian Clinical Labs) and profitable online retailers Accent Group (AX1), Adairs (ADH) and Harvey Norman (HVN).
- Don’t over-focus on the macro. While it helps to pay attention to broader economic trends, don’t fixate on these at the expense of company fundamentals. Often, good stocks will continue to perform well in a ‘bear’ market, while a ‘bull’ market may sometimes fail to save certain ‘dogs’ (poorly performing stocks).
- Disasters and setbacks, whether personal, financial or physical, might come your way – but these will pass and often with less damage than we feared. Everything takes its course. Keep that thought.
Finally, some better news, which should give us reason to be optimistic: Investment opportunities await!
After payroll figures yesterday showed an almost complete recovery in employee jobs by the start of this month, EY chief economist Joanne Masters said the figures were the latest sign that the economy was “roaring back”: “Pent up demand, combined with dollars in the bank and the wealth effect of higher house prices, suggests this spending boom will continue through the festive period”. (The Australian, Friday 26 November)
In the meantime, keep reading Shirl’s Pearls. I’ll make sure you look after your colon and stay healthy – and also give you more investing advice so you can enjoy the rewards!