Solv­ing ar­gu­ments between bulls and bears

Buy­ers and sell­ers of shares have dif­fer­ent mo­ti­va­tions, writes Martin Hawes.

Sunday Star-Times - - BUSINESS -

Why is the ven­dor sell­ing? That is an early ques­tion that just about ev­ery­one asks the real es­tate agent when buy­ing a house. It is an in­stinc­tive sort of ques­tion as we hope for an an­swer that might al­low us to bat­ter the price down a bit - even though the an­swer sel­dom lets you do that.

How­ever, when it comes to buy­ing shares, we do not get an op­por­tu­nity to ask the seller a sim­i­lar ques­tion: we never meet the sell­ers of shares and so can­not quiz them re­gard­ing their mo­tives.

Although you can­not get a di­rect an­swer from the ven­dor of shares that you may be buy­ing, smart in­vestors ask the ques­tion of them­selves any­way: why is the in­vestor sell­ing?

This ques­tion en­sures that you never go ahead with an in­vest­ment un­til you have as­sessed both sides of the deal. A mar­ket is re­ally an ar­gu­ment between buy­ers (called bulls) and sell­ers (called bears) and both have their rea­sons.

In­vestors must al­ways have some doubt – how­ever strong your ar­gu­ment, the other side has a point of view and you need to con­sider that be­fore part­ing with your money.

Here’s a cur­rent ex­am­ple of this: cur­rently, I am bullish on In­ter­na­tional shares. As a buyer, my rea­sons for this are straight­for­ward, the global econ­omy is im­prov­ing.

My bullish as­sess­ment is that the ma­jor economies in the world are im­prov­ing in a syn­chro­nised fash­ion we have not seen since the GFC. China, In­dia, Europe, US and the UK are all do­ing well.

I think the world econ­omy is in a Goldilocks place where we have low in­fla­tion, eco­nomic growth and low in­ter­est rates

But each time I bought in­ter­na­tional shares, I have won­dered who has been sell­ing. Do they know some­thing I don’t know? Have they made a bet­ter as­sess­ment than I have? Do they have in­for­ma­tion I am not privy to? I need to ask these ques­tions as a check and to un­der­stand why they have the very op­po­site po­si­tion that I have.

The sell­ers’ as­sess­ment will rest on mar­kets be­ing quite highly val­ued, geopo­lit­i­cal risk (es­pe­cially Korea) and the fact that this bull mar­ket is get­ting old. It has run largely un­in­ter­rupted for eight and a half years (the sec­ond long­est since the sec­ond world war).

That’s the bears’ view but I do not con­cur. My best as­sess­ment is that any fall is still some way off and in the mean­time, I am happy to en­joy the ride.

Nev­er­the­less, ask your­self why the seller is sell­ing and then as­sess whether those rea­sons are as good as, or bet­ter than, your own rea­sons for buy­ing.

Martin Hawes is the Chair of the Sum­mer Ki­wiSaver In­vest­ment Com­mit­tee. The Sum­mer Ki­wiSaver Scheme is man­aged by Forsyth Barr In­vest­ment Man­age­ment Ltd. You can ob­tain the Scheme’s prod­uct dis­clo­sure state­ment and fur­ther in­for­ma­tion at www.sum­mer.co.nz. Martin is an au­tho­rised fi­nan­cial ad­viser.

Martin Hawes is cur­rently bullish on shares but the op­po­site view needs to be ap­pre­ci­ated he says.

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