Solving arguments between bulls and bears
Buyers and sellers of shares have different motivations, writes Martin Hawes.
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.