‘Investing’ Category

Busting the bond myth

Busting the bond myth

Rate expectations…

The decline in interest rates to historic lows in recent years has led to anxiety among Australian investors about what will happen to their fixed interest holdings when overnight interest rates begin to rise.

This apprehension is based on the conventional view that longer-dated bonds underperform in this type of rising interest rate environment.

Dr Steve Garth provides another perspective in Cuffelinks.

Rick Maggi
Westmount Financial
Clear Focus. Better Solutions.

The Patience Principle

The Patience Principle

What we all know deep down inside…

DFA’s VP Jim Parker weighs in on the latest market volatility. As always, Jim’s ‘Outside the Flags’ issue is worth a quick read. Read here.

Rick Maggi
Westmount Financial
Clear Focus. Better Solutions.

Market Update 2 (Market Correction) 24 August 2015

Market Update 2 (Market Correction) 24 August 2015

The rout continues

Following a 3.5 percent sell-off on Wall St last Friday night, local and Asian markets continued to shed hard won gains with China leading the way, falling 8.5 percent in just one day. For some background on what has been happening, please read my previous note (Market Update 1 – 21 Aug 2015). For an updated viewpoint Read more here from Russell Investments.

Rick Maggi
Westmount Financial
Clear Focus. Better Solutions.

Let’s compare…

Let’s compare…

A few surprises…

Sometimes it helps to take look the world through an unconventional perspective when thinking about the size of things.

So here’s a pretty awesome map from Bank of America Merrill Lynch’s Chief Investment Strategist Michael Hartnett that shows the world according to free-float equity market capitalisation in billions of dollars measured by the MSCI.

The US, with a market cap of $US19.8 trillion, is the biggest and represents 52% of the world’s market cap. Japan is in second place at $US3 trillion, followed by the UK at $US2.7 trillion, and then France at $US1.3 trillion.

Notably, Hong Kong’s market cap is nearly the same size of China (both of which are significantly smaller than countries like the US and Japan).

Meanwhile, Russia, which has a bigger surface area than Pluto, is about the same size as Finland in terms of market cap.

Check out the whole map below.

Capital

Rick Maggi
Westmount Financial
Clear Focus. Better Solutions.

Market Update 1 (Market Correction) 21 August 2015

Market Update 1 (Market Correction) 21 August 2015

The Share Market Correction…

Since April, local share markets have been extremely volatile to say the least, gradually drifting lower by about 10% (as of today). Other markets have also fared poorly, e.g. Chinese shares -32%, Asian shares (ex Japan) -18%, Emerging market shares -18% and Eurozone shares -13%. Even the US share market, which has been relatively stable during this period has given back about 6%.

What’s happening?

First the backdrop. It should be recognised that the seasonal pattern for shares typically sees rougher conditions over the period May to November, consistent with the old saying “sell in May and go away, buy again on St Leger’s Day” (a UK horse race in September).

So with this typically difficult May-November period as our blank canvas, consider the following list of worries…

Greece:
Between April and June the immediate, highly publicised concern was, understandably, Greece. Thankfully, the emotional charge surrounding Greece and the Eurozone has, at least for now, greatly subsided, with the general agreement to a third bailout program. Of course, we could see a small flare-up again with today’s news of a snap Greek election.

China:
More importantly, bubbling away in the background, have been legitimate concerns about China’s slowing economy, and the impact this might have on the global economy, particularly commodity reliant countries like Australia. These worries have come to the fore in recent weeks in response to soft Chinese economic data, fuelled by China’s recent decision to devalue their currency – an unpopular move, but I suspect a positive in the long run – what’s good for China generally helps Australia.

It should also be noted that before China’s share market ‘crash’ of 30%, the Shanghai Index had risen by over 250% in just the previous two years. And this phenomenon is not new. In 2007/2008, the Shanghai Index rose 90%, only to fall 70%. So I believe the takeaway here is to not read too deeply into the Chinese share market.

Commodities:
Commodities were already in a secular bear market, reflecting a surge in supply and price upswing during the ‘boom’ years. Slowing growth in China and the rising trend in the value of the $US only adds further pressure on commodities and Australia’s challenged resource sector.

Unfortunately slowing growth in China and its subsequent currency devaluation has also put further pressure on already weak emerging market economies, which these days represent more than 50% of world GDP. Emerging economies really do ‘matter’.

US interest rates heading-up:
The combination of slower growth in China, falling commodity prices, weakness in the emerging world and the fragility of growth in developed countries indicates that inflation will not be a problem for a while yet. Just the same, the US Federal Reserve appears to be heading towards a rate hike soon and this is creating intense uncertainty – markets don’t like uncertainty.

Is it a correction or something worse?

While it’s certainly no fun, periodic sharp falls in the range of 5% to even 20% are actually quite normal and healthy. Of course, it becomes more concerning if the rising trend in share prices gives way to a declining trend and a new bear market sets in.

But as Sir John Templeton once observed “bull markets are born on pessimism, grow on scepticism, mature on optimism and die of euphoria”. There seems to be a lot of scepticism out there. Shares are simply not seeing the sorts of conditions that normally precede a new cyclical bear market: shares are not generally overvalued; they are not over loved by investors; and low interest rates are likely to remain for quite some time.

Of course, this update hasn’t taken you particularly circumstances into account, therefore, if you need personal advice speak to us, or contact your financial adviser.

Rick Maggi
Westmount Financial
Clear Focus. Better Solutions.

Time is on your side…

Time is on your side…

The Vanguard 2015 Index Chart

Every year, fund manager Vanguard produce a graphical, chronological ‘snapshot’ of the performance of local and international sharemarkets, property, cash and bonds, along with significant news events of the day. Always worth a look. Read more here

Rick Maggi
Westmount Financial
Clear Focus. Better Solutions.

China: What you need to know

China: What you need to know

Market update…

The Chinese share market has fallen dramatically in recent months. So what does this mean for you?
Read more here

Rick Maggi
Westmount Financial
Clear Focus. Better Solutions.

Inspirational quotes about ‘independence’…

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“I didn’t get here by dreaming or thinking about it. I got here by doing it.”

Estée Lauder, co-founder of Estée Lauder Companies

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“If you don’t go after what you want, you’ll never have it. If you don’t ask, the answer is always no. If you don’t step forward, you’re always in the same place.”

Bestselling-romance author Nora Roberts

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“Decide what it is that you are and then stay true to that thing. My brand is based very much on how I live my day-to-day life.”

Rachael Ray, businesswoman and TV personality

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“I enjoy the independence of single-handling a boat. I like controlling the elements, making the wind and the waves and the water work for me.”

Co-founder of CanWest Global Communications Gerry Schwartz

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“We must have a theme, a goal, a purpose in our lives. If you don’t know where you are aiming, you don’t have a goal. My goal is to live my life in such a way that when I die, someone can say, ‘she cared.'”

Mary Kay Ash, founder of Mary Kay cosmetics

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“I believe in benevolent dictatorship, provided I am the dictator.”

Richard Branson, serial entrepreneur and founder of Virgin Group

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“Remembering that I’ll be dead soon is the most important tool I’ve ever encountered to help me make the big choices in life. Because almost everything — all external expectations, all pride, all fear of embarrassment or failure — these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.”

Steve Jobs, co-founder and former CEO of Apple

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“If you want to be an entrepreneur, it’s not a job, it’s a lifestyle. It defines you. Forget about vacations, about going home at 6 p.m. Last thing at night you’ll send emails, first thing in the morning you’ll read emails, and you’ll wake up in the middle of the night. But it’s hugely rewarding, as you’re fulfilling something for yourself.”

Niklas Zennström, co-founder of Skype

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“I learned I’m not a good executive. I’m an entrepreneur, and I’m creative. I have to go with my gut and do what I want to do.”

Former CEO of United Artists and film producer Jerry Weintraub

Rick Maggi
Westmount Financial
Clear Focus. Better Solutions.