Buy in gloom, not boom for investment success
OPINION: There are many ways to successful investing, but one of the most rewarding is to buy in gloom.
Easy to say, hard to do. It takes courage to buy property, shares, bonds and other assets when others are selling. With luck and good timing substantial windfall profits can be made. The risk is that things won't come right – and your investment will lose further value or even go bung.
Then there's a sizeable group of long term investors that includes thousands in Kiwisaver funds, share investors and those with fixed interest deposits who don't worry, or aren't aware of fluctuations in the value of their investments.
Yet the same people probably know how much every house in their street has sold for: especially if they live in property obsessed Auckland.
We've just passed through an especially turbulent, but happily brief, period of volatility in the share and foreign exchange markets. This saw some big falls in prices encouraged by influential, noisy economic and market gurus and currency traders who talked much of the world into a funk.
They warned of imminent economic global woe because of the slowdown in the Chinese economy; or conversely that the Federal Reserve was about to lift US interest rates to cool its resurgent economy.
Calmer heads, as I argued in this column last month, shouldn't worry.
China is making no secret that it is rebalancing its economy: last week the British government made a blatant bid to become its closest business partner in the West with a glossy state welcome for the Chinese president to London: which didn't indicate the UK thinks China is about to go down the gurgler. (The president didn't get the same level of attention when he came here, though Kiwis can't lay on the pomp and circumstance like the Brits).
Weeks ago the world also seemed fixated about an imminent US interest rise. So far the Fed Reserve hasn't raised them: Deutsche Bank reports increasing talk that it won't raise rates at all next year - let alone soon.
This could have significant consequences for so called "risk" Australian and New Zealand currencies next year, especially given speculation that there will be no interest rises and further money printing in Europe next year.
Kiwi economists are divided over what the Reserve Bank will do with interest rates here given the conflicting economic data it is getting – most of it positive – and indications of an apparent recovery in dairy prices. It may leave rates untouched.
Property markets generally move at a slower tempo than other investments.
From late 2007 there was much in the press about falling prices in the Auckland property market with forced and mortgagee sales of expensive homes and the difficulties in selling apartments.
Even if one wanted to buy in what in retrospect was a period of bargain house prices, it was almost impossible to get a mortgage from financially stressed banks.
Compared to other investments, property is comparatively illiquid: it takes time to prepare and organise the sale of a home, farm or building.
Share, investment and commodity markets move to a much faster beat. The past few months have seen extraordinary movements in these markets worsened by a bewildering onslaught of advice on what is likely to happen next.
Those of us with a few miles on the clock – like me – weren't too concerned by the noise: the stock market seemed to be passing through its typical mid-year weak patch. Usually this ends in October, and history seems to be repeating itself.
Last month the NZX50 index plummeted 8.3 per cent after setting a record high of 5957.85 on August 3. It has rapidly regained all those losses and on Friday morning was back at 5957.
Last week Fonterra at one stage had risen $1 from September lows. Those that bought in gloom did especially well with Fisher and Paykel Healthcare, Air New Zealand, Heartland, Meridian, Turners, Spark, Nuplex, Diligent, Ebos, and Z Energy.
Shareholders in Sky TV had the bumpiest ride. Its share price suffered a nasty fall last month. A steady recovery was undone at the annual meeting when directors warned of lower profits this year, though some analysts believe it can maintain its high dividend in spite of higher costs and competition. FNZC has rerated it "outperform" with a target price of $5.49.
Dividends do matter, especially when bank deposits and fixed interest rates are so low. It was no surprise that the recovery in share prices, when it began, started with higher yielding shares. There are signs of renewed interest in tech stocks, such as Wynyard, that had been hammered, and Xero.
Exporters and importers also faced difficulties with unpredictable currency movements and a barrage of conflicting advice on the dollar.
In April, in spite of widespread forecasts, the kiwi failed to reach parity with the Australian dollar before suddenly slumping to A87.85c. Last week it had jumped back to A94c.
Sharp movements have also been felt against the US dollar which slumped from US76c to US62.5c before beginning a strong rally to around US67.5c on Friday.
The hordes of Kiwis following the Rugby World Cup in the UK – faced with high costs there - will be enjoying the growing spending power of the Kiwi against sterling.