In a world where world growth is not only slow but in all likelihood will continue to decline it seems absurd to talk about investing in growth stocks. Yet consider the possibilities. The Australia stock market is dominated by resource and finance stocks which in general have performed very poorly during 2015 and as a result the ASX200 index has fallen significantly and during the past 9 months has fallen by about 14%. By contrast an investment in growth stocks has significantly outperformed the ASX200 index.
The following chart compares the performance of a portfolio of 10 such growth stocks (the red line) to the ASX200 index (the black line) over the past 3 months. During this period the index moved sideways while the growth portfolio which included Blackmores, APN Outdoor, Bellamys and NetCom outperformed the index by about 20%.
Growth stock selection is simple and based on the… Continue reading
Telstra has been one of the best blue chip investments on the Australian market over the past few years. The stock has been on a steady uptrend and pays an excellent fully franked dividend. The yield on Telstra has been 8% or better based on fully franked dividends alone. But the return to the share holder on a stock such as Telstra can be greatly improved by using a simple trading approach.
I use a technical approach with the indicator RSI. This has been discussed in earlier blogs and in some detail in a paper at http://tinyurl.com/cgymhsf. This method is based on the RSI divergence signal and an RSI trend line. RSI used in this manner provides a high probability point at which to buy or sell a stock.
There have been two trading opportunies with Telstra over the past 6 months with RSI… Continue reading
Over the long term investors have lost money in the stock market over the September/October period. Since at least 1873 most of our worst crashes have occurred during September/October, whether it was the 1929 crash, the 1931 crash, the 1987 crash, the 2000 crash and even the 2007 crash was in the first few days of November. Could it happen this year? Of course it could and what is the potential trigger?
There are a number of potential black swans, any one of which could trigger a significant market correction. Currently we have a bull market fuelled by quantitative easing and not by GDP growth. Growth remains subdued and weak in most economies despite massive quantitative easing. The following are considered the most significant risks to world economic stability.
a. The European Union
b. Tapering of quantitative easing
c. The Middle East
d. Unknown factors in China
e. ETF leverage… Continue reading
Many small cap stocks have been heavily discounted over the past year compared to the big cap stocks, despite having good dividends and strong fundamentals. This applies particularly to stocks in the mining services sector. The question is when is the right time to buy an apparently good stock where the price continues to fall?
Take the example of Mineral resources (MIN), a mining services company which operates in two segments: mining services and processing and whose share price has been savaged along with all stocks in its sector. Fundamentally MIN is strong with a ROE 30%, Debt/Equity 36%, dividend of 5.2% and an increasing revenue and dividend stream. But the problem is that stocks such as MIN continue in a downtrend due to negative sentiment despite the real investment opportunity with some of these stocks.
So when should these stocks be bought, where the fundamentals are strong but the… Continue reading
It is that time of the year when one reflects on past investment performance and considers what changes need to be made to maintain or improve in the future. John Mauldin’s newsletter this week discusses a number of topics including debt, growth and risks in investing which cause me to speculate on where and how I will need to invest over the next year and indeed over the next decade.
The following graph, taken from Mauldin’s newsletter relates GDP, debt and inflation and is very sobering.In looking at the challenge for investors today we have a world buried in debt and the question now is how to remedy the problem. The European remedy is austerity but austerity does not improve growth and in the long run it is growth that is needed. In the above graph which is based on US data, it is evident that as debt increases,… Continue reading
I always enjoy John Mauldin’s newsletter, Frontline. In his latest newsletter at:http://www.mauldineconomics.com/images/uploads/pdf/mwo081712.pdf, Mauldin draws the analogy between instabilities and complexities which lead to avalanches, and the instability on world markets. I can’t help reflecting on just how appropriate this analogy is given the current uncertainties on world markets.
While we continue to talk of the US market, the UK market, the German market etc., it is perhaps now more appropriate to think of a world market. While there will always be regional and sovereign differences in markets, with the advent of modern communication, interdependence of trade and rapid transfer of capital, the world market concept is more appropriate.
In the event of a significant incident in any one major economy, the effects are quickly felt across the world in all markets. Today it is entirely possible that a market changing event could… Continue reading
As an investor I must always ask if my investment strategy is correct and at what stage it might need to be changed.
My past strategy of being in bonds with very little exposure to the market has served me very well over the past 18 months and has outperformed the index by about 20%. The question is should it now be modified? I continue to be bearish but I am influenced by the Coppock indicator which is indicating a potential bull market so I must have more exposure to stocks. But how much exposure.
The ASX200 remains in a long term downtrend and the Shanghai composite is in a very bearish long term downtrend. If the Shanghai composite (a leading indicator for the Australian market) does indeed give us an insight into the future trends in China, then I cannot be so confident about the medium… Continue reading
There is an erroneous view that dollar cost averaging is a smart investment strategy. With dollar cost averaging an investor buys more shares when the price of a stock falls and buys additional shares when the price falls further, etc. So the logic is that over time you pay a lower average cost for the shares you hold. Is this a wise strategy?
It works well when the net movement in the share price over the long term is up. But what happens if the net movement in share price over the long term is down or even worse if the stock that you are averaging down, goes into receivership?
Consider the following case where dollar cost averaging was applied to Centro Properties Group (CNP). This is actually the experience of a friend who invested in CNP using DCA.
Bought original 1000 shares at $10.00
Bought another 1000 shares… Continue reading
I have always wondered why intelligent people spend a lifetime accumulating assets and when they retire, invest those assets on the advice of a financial “expert” without appropriate due diligence. Worse still, many people simply place their assets under the control of a financial professional.
We are all aware of extreme examples of professional ineptitude or dishonesty such as the Bernie Madoff scam and we would hope to avoid getting involved in that sort of investment scheme. But why do we place so much confidence in our brokers, financial advisors and fund managers?
It is well established that most fund managers fail to beat the market index and yet investors continue to use these failed managers and in general the other financial experts are no better.
Upon psychological analysis it seems that the reasons why we blindly use flawed financial professionals are simple. If I seek advice I will eventually… Continue reading