please also note, when i am talking about pricing danger, i am talking on an estimate of a 2-3 year basis.
How low will the ASX go?
- Thread starter bene313
- Start date
There is no such thing as "so young it doesn't matter if you are wiped out".
ALL markets are dangerous today.
Fair enough Sunfish!
That is why it is extremely important to know the history of the asset class you invest in.
Make sure you can distinguish between what is a bargain and what is overpriced. What is quality assets and what is average/poor asset.
Make sure you always have a plan B.
Learn to manage your risks well. Make sure you never put yourself in a position where you are forced to sell. This way time in the market can do it's thing.
I understand your point of view about being really careful right now. I am being very selective in my asset purchases and putting a lot of effort in managing my risks. My argument is that there are still opportunities out there, that has a good chance of making you a satisfactory ROI over 5-10 year period.
As an investor your job is to constantly look for good opportunities and in my experience those good opportunities usually present themselves much more during uncertain times then during boom times.
Just my 2c.
Cheers,
Oracle.
Thanks for that info IV always very helpful.
Sorry to here about your losses, but im sure you'll make that back very quickly.
I'm using a margin loan
and a retail investor, but have a large buffer (40% Gearing) So my shares have to drop 47% before margin call and once my tax return comes in + ITWV ill have enuff cash to feed the beast if need be.
Well time to go get a hair cut and have some food
Take Care,
RH
Sorry to here about your losses, but im sure you'll make that back very quickly.
I'm using a margin loan
and a retail investor, but have a large buffer (40% Gearing) So my shares have to drop 47% before margin call and once my tax return comes in + ITWV ill have enuff cash to feed the beast if need be.Well time to go get a hair cut and have some food
Take Care,
RH
IV are you saying that at some time during every month, make a contribution when the market seems down. No mention of selling here... How long is this monthly contribution strategy to run for? Or does it not necessarily have to cease?
Agree below 4000 maybe even down to 3700-3800.
Plan to buy shares with dividends in September to October.
Kind Regards
Sheryn
My concern is that the markets could see/saw for several more years as this tug of war continues.
Consider also that interests are effectively zero accross much of the globe.
Why is this important?
because any sustainable increase in growth will result in interest rates being pushed up again. Interest rates going up will be negative for equities.
So in my opinion, you have two choices:
(a) stock specific investments, but this means alot of work, you cant just listen to brokers or research analysts because their timeframe is usually different to yours. Alot of research material is actually 'trading' material wrapped up in a traditional 'buy' recommendation. You also have to be quite clear about your 'buy in points' and the future direction of the company. You have to be careful taking your lead from the market, because the market is being influenced by a number of factors that are not stock specific (more so than in recent history).
(b) Personally if i wanted to be lazy, i would be making contributions to an index fund every time the market was going through 'weak' periods. Weak periods could last days/weaks/months. But basically you are making contributions when there is 'fear' around. How do you know there is fear?
just check out the newspaper and the index.
Once optimism comes back i would cease, why? because of the potential see/saw effect i mentioned above.
Why would i not just wait for all this 'difficult market conditions' to blow over?
because by the time we realise this, the markets will be much higher.
Just consider 2009, more than half of my money was made in the two months after the low point in march 2009.
Personally i would not be using debt in the current market, unless one is both experienced and flexible.
If you want to be completely passive, then a straight month to month equal amount of contribution can still work in the current market, but you need a long term horizon, and again without debt. This approach will be less effective, but still effective.
Dollar cost averaging works best once a market has 'deflated'. Unfortunately most people start dollar cost averaging when a market is 'high' (because its only when they see recent high performance that they become interested in the asset class).
Obviously these are my own opinions, not recommendations.
Thanks for that info IV always very helpful.
Sorry to here about your losses, but im sure you'll make that back very quickly.
I'm using a margin loan
Well time to go get a hair cut and have some food
Take Care,
RH
Its all good, i posted this because mostly i talk about stocks, and hence a declining market is generally good for buying stocks.
This time i wanted to talk about debt and the need to be flexible if one is using margin debt.
In 2008 i was starting off a low base (i had only minimal investments in 2007 in the equity market, something like $30/$40k, i now have more than $2million in the markets). So in 2008 i could just keep dollar averaging into the downturn, because my starting base was so low. In 2010 am no longer in that position so, because the $ value of the debt is higher, i have to be more proactive.
By selling some stock yesterday, i release the pressure long before i am 'forced' to do so. (i also have large buffers, but i plan on keeping them large in this environment).
Last edited:
I can see no overwhelming reason to be investing new money in shares today. I would definitely be clearing any margin loans. We (the broader world markets) are in deflation and in these times cash is king. (Don't take that too literally, please)
I don't see any reason to have long term positions in shares in this environment.
Like others I think global growth will be subdued for the medium term.
Single digit growth in China will be offset by very low growth in OECD nations, possibly negative real growth, as they delever.
I expect high volatility and lots of uncertainty.
I am playing that via etfs in vix, gold, platinum group metals, and oil.....
I am pairing opposing commodities - flight to safety versus industrially useful. and longing/shorting based on technical analysis, macro data, and news.
With this much uncertainty, the fundamentals and news drive a lot of the volatility.
I am using stops and exploiting commodity currency movements as well.
Most large market movements are generated in the US and European markets, hence why I've been a bit of a nightowl for the last few months.
Anyone justifying long term holds on the basis of dividends, imho would be better off in term deposits at 6%+.
Like others I think global growth will be subdued for the medium term.
Single digit growth in China will be offset by very low growth in OECD nations, possibly negative real growth, as they delever.
I expect high volatility and lots of uncertainty.
I am playing that via etfs in vix, gold, platinum group metals, and oil.....
I am pairing opposing commodities - flight to safety versus industrially useful. and longing/shorting based on technical analysis, macro data, and news.
With this much uncertainty, the fundamentals and news drive a lot of the volatility.
I am using stops and exploiting commodity currency movements as well.
Most large market movements are generated in the US and European markets, hence why I've been a bit of a nightowl for the last few months.
Anyone justifying long term holds on the basis of dividends, imho would be better off in term deposits at 6%+.
WW,
Everything seemed perfect for investment when the ASX was around 6800. Everyone was using margin loans right upto the maximum limit allowed. Then came the GFC. Suddenly, nobody trusted the sharemarket anymore. There were 101 reasons to believe that market will crash and burn and will have decades of no growth and all banks are doomed. Since March 09 ASX bounced from around 3200 odd to 5000 in matter of 9 months. Nobody saw that coming either. Now some reality check kicks in and we are seeing prices come back anywhere between 10%-30% after rallying and nearly doubling in value from March 09 lows.
Just to give you an example CBA traded at $30 bucks at height of GFC it was paying nearly 14% gross dividend in 2009. Last I checked it was trading around $47 today growth of 57% and projected dividend of 2010 is 385.5cents and in 2011 is 440.2 cents fully franked. On $30 purchase price that is 18.35% gross return and 21% on 2011 projection! I know it's projected and can change and be downgraded but still even a cut of 5% or 10% on projected dividend is still better then your 6% term deposit.
Secondly, Telstra was trading at $2.92 just few weeks back. Based on that price the gross dividend would be 13.7%. I am by no means recommending these companies. Just stating that dividends can provide better income stream then term deposits. Sure, there is bit of work involved in making sure the company's balance sheet is healthy. But once you get used to it you know what to look out for and what to avoid.
I can go on and give more examples. But that would be pointless if you have already formed an opinion abt shares being too risky and not a good investments.
There is absolutely no guarantee on how much more the ASX will fall and no guarantee when it will recover. And I am not going to lose my sleep over it. All I care is where the value is and invest where I see long term growth prospects. Remember nothing lasts forever. Just like the ASX 6800 boom and then the GFC where it dropped to 3200 and then the rally where it went up to 5000 and now the correction where it's dropped to 4200. This too will pass with time
Cheers,
Oracle.
Are you sure your figures are correct?
I've got CBA paying $1.13 and $1.15 last year for $2.28. So if you bought at $30 that's not 18% gross return.
I have CBA paying $2.80 this year, so at $47 it's just a 5.9% yield. Add franking credits of course.
If CBA was bought in Feb 2009 for $30, this year it would be on a 9.3% yield, and add franking credits. Buying CBA at $30 was a bargain allright, but it's hard to buy at the very lows. Well done to those who did.
I think your telstra figures are correct if you are adding on the franking credits.
My oldies still own their CBA's from the float. So at $5.40, and with a $2.80 div this year they will be getting over 50% yield not including franking.
See ya's.
This is exactly how you should be thinking if you are an investor (not a trader)
Another good point, except i would add that if you buy 'good' companies, their dividends will grow over time.
I wouldnt use telstra as an example, their profits havent grown in 10 years.
But CBA is a good example. It may have some turbulent times, but its times like these that you get back to basics.
In 10 years time what will incomes be higher or lower than now?
In 10 years time what will house prices be higher or lower than now?
In 10 years time what will australia's population be higher or lower than now?
etc etc.
If the answers are yes, then there is a good chance that CBA's profit will be higher in 10 years than now and hence so will the dividend.
Now what happens if CBA blows itself up?
Well you dont put 100% of your investment capital in a single company, a 'normal' passive investor should diversify with a minimum of 10 shares spread across different industries.
If i was creating a 'mum and dad' portfolio it would look something like this:
CBA/WBC/NAB/BHP/WPL/QBE/COH/CSL/WOW + some others.
But the key is not to buy them all at the same time, they each move through their own cycles, at any point in time some or all might be overvalued/undervalued.
There is absolutely no guarantee on how much more the ASX will fall and no guarantee when it will recover. And I am not going to lose my sleep over it. All I care is where the value is and invest where I see long term growth prospects. Remember nothing lasts forever. Just like the ASX 6800 boom and then the GFC where it dropped to 3200 and then the rally where it went up to 5000 and now the correction where it's dropped to 4200. This too will pass with time
Again this is a very good frame of mind to have,well done.
All i can add is to be careful of using debt, if you have no debt and are thinking like this you pretty much cant go wrong over the long term.
We have been here before, the story is the same, the characters are different.
Look at the 1970's, imagine living through that period, sky high oil prices, oil cartel, massive stagflation, cold war, worry about a neuclear war etc etc, yet we got through it, AND WE WILL GET THROUGH THIS.
Yes Oracle, nothing lasts forever or is guaranteed, especially the longer the time span. Time is risk, even moreso in this climate. What was a good company yesterday, can be a bad company today.
My focus for the time being is based on reducing time risk and exploiting slightly more predictable volatility.
I often wonder which data value investors use to reduce the uncertainty surrounding future profits projections, and how many just rely on profit downgrade announcements as they come.
Howdy,
I've done some reading on franking credits, still trying to wrap my head around it completly.
Can you guys advise if im on the right track
1.)Share is purchased with no debt, I recieve a franking credit with it, I'm on the 30% tax bracket. The franking credit is at the companys tax bracket of 30%. It reduces the amount of tax i'd usually have to pay on that share to 0?
2.) What if the share is negativily geared, can that credit be used to lower my other income (PAYG)? Sorta like depreciation?
How do i figure out what the gross yield is with the franking credit (100%)?
Regards,
RH
I've done some reading on franking credits, still trying to wrap my head around it completly.
Can you guys advise if im on the right track
1.)Share is purchased with no debt, I recieve a franking credit with it, I'm on the 30% tax bracket. The franking credit is at the companys tax bracket of 30%. It reduces the amount of tax i'd usually have to pay on that share to 0?
2.) What if the share is negativily geared, can that credit be used to lower my other income (PAYG)? Sorta like depreciation?
How do i figure out what the gross yield is with the franking credit (100%)?
Regards,
RH
My apologies. You are right. I by mistake used EPS values rather then DPS as they were put right next to each other and was using my small iPhone screen to check them out.
To rephrase, on $30 purchase price you would have got 10.85% gross return in 2009, and 12.38% on projected 2010 and 14.22% on projected 2011.
You are right topcopper, it is extremely hard to buy during uncertain times. Majority of the ppl buy at the top (ASX at 6800) and sit tight when the opportunity is too good to be missed. I have done this myself.
Cheers,
Oracle.
RH it's just a tax credit, so tax paid by the company passed on to you.
ie. You receive a $7 dividend fully franked. You actually are receiving a $10 dividend, it's just that $3 of tax has already been paid. Therefore, if you are on a 30% tax rate, no more tax need be paid. $10 x 30% = $3
For fully franked divis:
Gross divi = (net divi x 3/7) + net divi
So from eg above, net divi = $7
10 = (7 x 3/7) + 7
This is a real bummer, trying to make future estimates during times of changes in economic inflection points is a real nightmare.
I hear you on this and made mistakes myself, by relying on historical data.
I have since tighted up my forecasting by focusing on:
(a)those companies that are still increasing their profits; and/or
(b)refusing to 'pay' up front for future rosy earnings estimates. I want growth, but i dont want to pay for it, i want to be adequately compensated on current prices.
(b) is why i didnt have much exposure to the banks in this latest downturn, and is why i am now back to buying banks.
