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Delta’s has descended, but the long-term is inevitable, you’ll see!

Let’s start with some words from the great man himself:

“Anyone who tells you that they know what the market will do is lying.”
Warren Buffett

But, we have fielded a few questions about the shorter-term direction of the market.

So, just out of interest, where do we see Markets?

Shares remain vulnerable to a short-term correction, with possible triggers being coronavirus (what?), the inflation scare and lower GDP. Enduring shutdowns will negatively impact our GDP, but we all saw what happened last time we had a technical recession:

We seized up, then we re-opened, euphoria reigned, and it was the fastest EVER economic turnaround. Rinse and repeat, as the second half of this year looks to be following the same script.

We are due for a correction, but we’re always due for a correction. We don’t know when; next week, next month or next year, so trying to time it is a moot case. Your time will be better spent learning to surf.

Looking through the short-term noise, the combination of improving global growth and earnings helped by more fiscal stimulus, vaccines ultimately allowing a more sustained reopening and still-low interest rates all auger well for shares over the next 12 months.

Another round of shots?

Sorry….. these ones…

Cash and term deposits are likely to provide poor returns, given the ultra-low cash rate of 0.1%. The setback from coronavirus lockdowns could push the first-rate hike back into 2024, exactly what the RBA has repeatedly stated.

More specifically, we see:

  1. Large mining and resource stocks have peaked for now.
    – The iron ore price spent some time over $200US/t, but is now $136US/t; and
  2. More upside in the major banks.
    – With interest rates at record lows and set to remain there for some time yet…
    – Where else will you find an investment returning income of ~6% (~4.2% fully franked).

So, where does that leave us?

Lesson 1: Don’t swim against the tide; the trend is your friend

This concept is one of the core pieces of wisdom from Marty Zweig’s classic book, “Winning on Wall Street”.

You have to stay on the right side of the market. If you try to trade long in a bad market, it’s painful.

Likewise, don’t turn cautious just because the market hits new highs — like now. You should love new highs because it is a sign of market strength that may likely endure. One bullish signal is all the cash on the sidelines; if you try to go short in a rising market, lookout.

Remember, the trend is your friend.

Lesson 2: Don’t be emotional; turn down the noise

It’s no surprise so many people do poorly in the market. Evolution has programmed us to fail.

For survival, we’ve learned to run from things that frighten us. And crave more pleasurable things like sweets or fats to store calories ahead of what might be a long stretch without food.

But in the market, acting on the emotions of fear and greed invariably make us do the wrong thing at the wrong time. Sell at the bottom, buy at the top.
Likewise, we’re programmed to believe being with the crowd brings safety. If you’re a zebra on the Savanna, you are more likely to get picked off by a predator if you go it alone.

The problem here is being part of a crowd — and crowd psychology — dumb us down to a purely emotional level. This is why people in crowds do terrible things they would never do on their own.

It doesn’t matter how smart you are. When you join a crowd, you lose a lot of IQ points. Base emotions take over.

To do well in the market, you have to counteract these tendencies, leading to Lesson 3.

Lesson 3: Stick to your long-term strategies so you can make the most of compounding!

And don’t second guess your long-term strategies. Don’t behave badly during ‘bad’ years.

The stock market has good years and bad, but there is only one trend over the long term, and it is up.

But of course, in the short term – from year to year – markets are volatile.

The best performing asset class over time is Equities. Volatility is the price you pay for a seat at the table.


Asset Class Investment Growth

Growth of $1 from July 1989 to July 2021

Here’s more on the actual events.

If the short term is unknowable and the long term inevitable, an investor really does need to focus on the long-term.

This will keep you from letting the pandemic or Afghanistan scare you out of the market. A terrible humanitarian cost, but an emotional reaction.

There will be another crash. Guaranteed. If you panic and do the wrong thing at the wrong time, your behaviour will hurt your future investment returns.

If you get out, when will you get back in, then how much have you left on the table?

Recoveries off bottoms tend to happen fast. You can’t call market tops or bottoms.

In Conclusion

Make the most of the power of compound interest, don’t get thrown off by any cycle, invest for the long term, turn down the noise and repeat the mantra “the trend is my friend”.
Easy as that…right?

If you’re not sure or feeling vulnerable, ask us.

Until then, stay invested, stay safe and remember that the long-term is inevitable.

Denise Locantro
Associate Director
Wealth Management and Protection

AAG AustAsia

AAG AustAsia

AAG is a family-owned group providing Tax planning, management accounting, wealth management, and more. Established in 1979, AAG acts entirely in their clients' best interest by providing financial expertise and upholds a reputation of nurturing long-lasting relationships with clients to assist them with all their personal and business financial issues.