Riding the stock market roller Coaster

Papers presented at the 4 March 2016 'Riding the stock market roller coaster', one-day seminar held at Sydney, are available as indicated by the links in the program below.

Australian investors have one of the highest rates of share ownership in the world, either through their personal investments or their superannuation.  Many investors were scared off shares during the GFC and vowed never to return.  Others “hold on for the ride”, while keeping their fingers crossed with a “buy and hold” philosophy, while some frantically trade, attempting to outsmart others in the marketplace.

What are the drivers of stock market prices, and does volatility offer opportunity or risk?  How can we overcome the primary drivers of fear and greed and benefit from long-term trends in the stock market while avoiding the worst downturns and protect our capital?

In this one-day seminar, we present investors with a range of tools – economic, fundamental and technical – to assist investors to grow their wealth over time.
 

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Macro drivers: Australia in the world economy          

Paul Bloxham (Chief Economist, HSBC Bank Australia)

As mining investment falls, growth is rebalancing to the other industries. Low interest rates supported rising housing prices and construction and encouraging greater household spending. The next stage of the rebalancing act is expected to entail a strong pick-up in the services sectors. Domestically, demand for services is set to be driven by low interest rates, rising asset prices, shifting preferences and solid population growth. Foreign demand is also rising, as Asia's middle class incomes grow and the AUD falls. Tourism and education exports are growing strongly and are set to continue doing so. Jobs growth is being driven by the services sector, led by healthcare, professional services and tourism.

At this stage, however, although non-mining businesses appear to be taking on more workers, they are still cautious about investing. Encouraging a pick-up in non-mining business investment remains a key challenge for Australia. What would help is a focus on tax and regulatory reform and building infrastructure to improve local competitiveness and support a services-driven upswing in growth. This would support the continued rebalancing of growth, lift productivity and motivate greater private sector investment. Without reform and investment Australia's potential growth rate could be noticeably lower than in the past.

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Stock market booms: The danger signs         

Colin Nicholson (Investor and Educator)

Economic history over the centuries has thrown up a series of stock market booms and busts. The big bear markets do not occur that often, but most of us will experience three to five of them in a lifetime. Small bear markets are manageable for most investors, but the big bear markets, if they are caught in them can destroy capital. This is even more so if the stocks the investor is holding are not soundly financed businesses.

Colin has been studying this subject and applied his research successfully over 50 years investing in Australian stocks. In this talk he will present some new research he has been undertaking that greatly fleshes out his earlier published work. This is an opportunity to be the first to hear Colin’s new research findings.

 

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Cycles within cycles - Where are we now?                 

Robert Vagg (AIA member)

An analysis of the 140-year history of the Australian equities market allows the identification of underlying cycles that define share price movements over different time frames. The average annual cycle shows little change in the market’s position in late October from where it was at the beginning of May. A ten-year cycle typically displays share price weakness early in each decade that precedes a period of strong price growth as the end of the decade then is approached. Another cycle shows the market to be proceeding in discrete steps through a structured sequence of major support/resistance levels whose positioning is determined by the same recursive process that generates the Fibonacci number sequence.

Such cycles mirror the two-phase expansion-then-consolidation patterns that are observed in our natural environment, resulting in a pulsed form of growth. Their identification can provide a blueprint for the stock market’s normal volatility limits and its likely major turning points, thereby assisting the management of capital risk.

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Can we time the stock market?           

Percy Allan AM (Market Timing Pty Ltd)

Shares are a key component of most investor's portfolios, but many people are turned off by the roller coaster ride that comes with buying and holding shares regardless of market conditions.  Is it possible to enjoy market rallies and avoid the downturns?  

In this presentation, Percy Allan will describe a timing system based on technical indicators that issues signals for getting into and out of the market.  Back-testing over 28 years shows that market timing strategies can beat a buy-and-hold approach by between 2% and 3% a year, with far less downside risk.

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Are we valuing stocks correctly?           

Hugh Dive (Aurora Funds Management)

In the financial press close attention is paid to how analysts rate individual companies, even though they frequently changes their opinion. Depending on the reputation and influence of the analyst in question, “Buy” calls are greeted with joy and rising share price. “Sell” causes concern and the stock price falls. “Neutral” calls tend to result in ambivalence.  In this presentation Hugh Dive will delve into the strengths and weaknesses of commonly used methods to value a company and how valuations can change over time.   

Further, the ultra-low risk free rates that we are experiencing across the developed world poses interesting questions for analysts who value companies. Low interest rates can contribute to asset price bubbles as it can corrupt the discount rates being applied to valuing companies, and often assume that our recent experience of interest rates will occur into perpetuity

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Options for volatile times: Protecting the downside         

Graeme O'Brien (Manager of Equity Derivatives, ASX)

Depending on your portfolio, you have probably experienced a decline in value recently. Market volatility is the new norm with the S&P/ASX 200 often up or down 1% or more each day. Hope is a wonderful thing, but where do you go for cover when uncertainty looms? You could look at alternative investments such as holding cash or bonds and then get back into equities when things settle down. Maybe, but chopping and changing asset allocation can become a full time job let alone losing out on dividend income and franking credits. This is where options can assist in creating a portfolio where you control the risk level that you are prepared to accept.

Graham will uncover a few simple steps on how to manage your share portfolio in good times and bad.

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