Boom or doom? How to forecast the sharemarket
Markets have been soaring for nine years, but all good things must come to an end.
THE New Zealand sharemarket is on a rip-snorting run. Last month the benchmark NZX 50 index crossed a record-breaking 8000 points, and has climbed even higher since. Markets overseas are enjoying the same rally. Shares have been soaring for almost nine years now, making this the second strongest bull market since World War II.
Naturally, the doom-mongers are out in force. Renowned paragons of investing wisdom, Men’s Fitness, advise that ‘‘there’s a 100 per cent chance the stock market’s in the middle of a bubble’’. Others are making similarly unfounded claims, presumably based on Tarot card readings or the weird tingling feeling in their knee.
The underlying sentiment is, however, worth paying attention to. Lots of respected analysts and economists are also urging caution. They’ve actually done the numbers, and they’re saying that the market is starting to look ‘‘fully priced’’.
Does that mean we’re due for a correction – or worse still, a crash?
The only honest answer to this question is that no-one knows. If anyone tells you otherwise, they’re either deluded, or trying to sell you something. The market is way too complicated to predict the future with any degree of certainty. Rather than wasting time trying to read signs in the entrails, investors should be coming up with a strategy to protect their necks.
For some people, that means getting out while the going’s good. The way they see it, the market is about to top out, and they can always buy back in again at the bottom.
It sounds good in theory, but
Most people don’t realise that investing should be about as exciting as watching paint dry.’
it’s a bad idea in practice. Imagine if you’d listened to the doomsayers who were saying the same thing this time last year: By sitting on the sidelines with all your money in cash, you would have missed out on a stonking 19 per cent return.
Yes, the bull run might end tomorrow. But it also might end one year from now. And it might keep chugging along for another five years. Who knows?
Getting the timing of your exit right will require a great deal of luck, but that’s only half of it. You’ll also need to buy back into the market just when it’s about to start its recovery. Too early, and you lose money. Too late, and you miss out on the upswing.
Here’s an alternative strategy for surviving a crash: Do nothing whatsoever.
If you make regular contributions every month, just keep plugging away. When the market starts falling, think of it as everything being on sale. Month after month, you get to buy up bargain-priced stocks.
Once the market starts to recover, you make back all your ‘‘losses’’ and much, much more.
During the last crash, the New Zealand sharemarket plummeted 32 per cent in a year. The worst thing anyone could have done is panicked and sold out, because the market not only recovered, but soared past its previous highs. Those who held the faith and kept steadily buying made a small fortune.
Most people don’t realise that investing should be about as exciting as watching paint dry. The best investors don’t need to try and make clever predictions, because they’re in it for the long haul. They’re not stressed out by the ups and downs. They stick to their ‘‘boring’’ strategies. And at night, when they go to bed, they sleep like babies.
Got a money question? Email Budget Buster at richard.meadows@thedeepdish .org, or hit him up on Facebook. You can also find links to previous Budget Busters here. IF all goes to plan, your mobile phone could be making a terrible shrieking sound this evening as part of a nationwide test of a new disaster alert text warning system.
But organisers of the test – which is due to take place between 6pm and 7pm and will also include a text message – are also well aware that in the light of yesterday’s volcanic alert for Mt Ruapehu that even this dress rehearsal has the potential to spook more than a few Kiwis.
For starters, at tonight’s Hockey World League bronze medal playoff there are already plans in place for a ground announcer will warn the crowd of what’s going on in a bid to prevent mass panic.
Hockey New Zealand’s John Whiting said about 3000 people were expected at both the bronze playoff and the final at Auckland’s North Harbour Hockey Stadium.
However, their events team were aware of the drill and the ground announcer will do their best to ensure everyone understands what is happening and remains calm, he said.
Because the alert will go to all cellphones that are switched on, capable and inside a targeted location, there’s likely to be a chorus of shrieking phones in busy areas such as shopping malls.
Ministry of Civil Defence and Emergency Management director Sarah Stuart-Black said an extensive public awareness campaign had been mounted to make sure as many people as