Market mess. But you do not own the market.
I don’t know how many times I have said that:
“An over-valued market will correct, with the trigger for the correction seemingly unrelated to the share-market”.
The current sharp downturn in the Australian and US stock markets has been blamed on:
• The collapse in the price of oil
• The collapse in the price of iron ore
• The slowing of economic growth in China
• The increase in US interest rates
• Possibility of Trump becoming US president
• Etc, etc.
Once the fall from the top is 20% or more, the jargonites say it is a ‘bear’ market (compared to a ‘bull’ market, which is when it goes up).
Correction? It doesn’t matter why.
The US stock-market was trading on a P/E of over 17 (the long-term average is about 15). The Australian Market was trading on a P/E over 15, also above its long-term average. These had to reverse. The (a) momentum buying (purchase of growth stocks on the basis that they would grow forever); and (b) ‘search for yield’ stock buying has stopped. As it had to.
1. Not the GFC
Ignore the media. This correction is not another GFC. Major financial institutions are not at risk as some were in the GFC.
2. The share-market doesn’t matter
You do not own the share-market. You own what is in your portfolio, obviously. So look at the portfolio metrics and ask if, in the long-
term, you are comfortable with such metrics.
3. Portfolio metrics? Whaaat?
Priced as at Thu-11-Feb, your share portfolio has the following three key metrics (compared to the market).
|Yield||Expected 3-Y profit growth||P/E|
|First Samuel target share portfolio||6.4%||11%||10.3|
|First Samuel advantage||1.9%||+8%||+32%|
What’s not to like? But it may take some time for the embedded value in your share portfolio to be realised.
4. It’s too late to sell
With perfect hindsight, you might have sold on 27-Apr-15, when the market last peaked at some 20% higher than it is today. But (a) you didn’t have perfect foresight then; and (b) in any case, had you sold, when would you have bought back in?
And then we had a defensive portfolio in place for you – which has held you in good stead.
Capitulation now would be exactly the wrong thing to do.
5. What is First Samuel doing for you?
Looking for buying opportunities. And actually buying a little. Two weeks ago, your share portfolios held about 25% cash set aside for share purchases. That cash level is now down to about 12%. We have been buying securities that we consider are under-valued: BHP; Primary Health; Origin Energy notes; ALS Limited; and Heemskirk.
And read Friday’s Wry & Dry, Investment Matters section, for more details.
As always, please call your Strategist (Nikki, Chris, Simon, Jack or Jenny), Anthony or me directly if you wish to further discuss investments.