I received an interesting newsletter from a prominent investment institution last week attempting to allay investor’s fears in regard to the share market. Obviously many investors are either leaving the managed funds preferring to invest directly or they are simply losing faith that the funds can deliver.
What concerned me most about the newsletter was their continued barrage about the benefits of dollar cost averaging. When will the industry learn? If the events of the past 18 months have not been enough to prove that this technique is flawed then what hope has the average investor got? Maybe they should read my book – How to Beat the Managed Funds by 20%’.
It is basic common sense that if an asset is falling in value you do not buy more as this will increase risk. In my opinion dollar cost averaging is and always will be a marketing ploy used by institutions to keep ordinary investors channeling money into the managed funds so that they can profit rather than the investor.
More now than ever, investors need to educate themselves so they fully understand not only the market they are investing in but how to invest. Sadly most individuals will procrastinate about their education preferring to wait for a better time, which as we all know never comes. It is far better to be forearmed with knowledge in order to make informed decisions because one thing the past 18 months has taught many investors is that ignorance can be very expensive.
So what can we expect from the market?
The bad economic news in the US has again rocked world markets over the past week, with the Australian share market falling below its low in November 2008. This highlights why I have continually said over the past 4 months that even though I thought the November low might be our long term low it was yet to be confirmed and investors needed to be cautious.
Our market has now been falling for 10 months since May 2008 and I cannot find another time in history that this has occurred. It would, therefore, be correct to say that it is extremely rare for our market to fall for so long without at least a few months trading up. The Dow fell 23 percent over 14 months without rising into 1978, and currently it has fallen 44 percent over the past 7 months without rising.
Given this, probability suggests that the bottom should occur on our market very soon. It is possible that the bottom is occurring now and that we will see a strong move up into around mid year to levels of between 4200 and 5000 points. That said it is possible that the current volatility may remain until the end of the month. As always we need to wait for confirmation that the down move is finished before acting.
Until next time
Good luck and profitable trading.
Dale Gillham
Chief Analyst – Wealth Within
