The other week I suggested it was getting close to the time when we get back in, which, not surprisingly, led some subscribers to ask the question: “When did Peter get out and why didn’t he tell us?”.
The simple answer is: I have not gotten out and that’s why I didn’t share this advice with anyone.
However, I did use the term “get back in” incorrectly and what I meant to say was that it was “time to do some buying again.”
Let me explain how I play my SMSF, which I share with my wife, Maureen and my two sons Alex and Marty.
Despite our age difference we have the same high-risk profile and therefore we are heavily invested in stocks. Sure, Maureen and I will one day become more cautious, but my sons, who are 29 and 33 years of age, can be risk-takers for some time yet.
We buy quality companies at low to good prices and sometimes we hold back on our next round of purchases when we think the market has gotten ahead of itself. From about March I was thinking that and regularly told you – my subscribers – that I expected a sell-off or correction was due to happen.
It has happened, and that’s why I say we are now in buying opportunity territory but I have also kept stressing the fact that we were down about 8% while the US market was down only 2% or so. I suspected, and I argued it here, that when the Yanks start dumping stocks, no one is going to say: “Oh, the Aussies have had their sell-off and so they won’t have to follow Wall Street.”
We saw last week that this would be a silly proposition to believe in. Mind you, it is possible that the Yanks won’t sell-off deeply because there are a lot of owners of cash on the sidelines, hoping to get into stocks with bonds and other fixed-interest investments looking so unrewarding.
What’s the deal?
In other words I’m getting close to buying the local market. However I wouldn’t be surprised to see another leg down when the start of QE3 taper begins, therefore I might put half of my cash in now and hold some cash back as my hedging plan.
Alternatively it could be played out over the next few weeks, but it would need a trigger of a shock event or a run of bad economic data. The former I can’t predict, while I expect the opposite when it comes to US data – I reckon it will pick up.
So I could wait to see if an uptrend takes hold or I could gamble and buy on some big down days holding back a portion of cash in case my stocks fall further – I am always happy to dollar cost-average stocks I want to hold.
Like Geoff Wilson of Wilson Asset Management, who I spoke to on my Sky Business program last week, I expect stocks to rise over the next two or more years. But I will get more nervous when interest rates in the USA start to get back to normal levels.
That’s when I might opt to go to cash but when that happens, you will be the first to know.
Sorry, if I created confusion with that “get back in” line – blame it on the soporific implications of a week in Turkey, which was a ‘riot’ and a week on the Greek island of Patmos, which clearly took off my sharp edge.
For more on why Forbes magazine loves Patmos go to: http://www.forbes.com/2009/09/03/europe-most-idyllic-places-lifestyle-real-estate.html