It’s one thing to be connected.
And it’s another thing to understand the philosophical meaning of money.
But it’s something completely different to put that into practical advice.
That’s where our colleague Greg Canavan enters the picture.
Greg knows more than just about anyone we know when it comes to the theory of money. But that’s not where Greg’s skills end. He’s also an accomplished value investor.
When you think about it, being a money theorist and a value investor are a natural combination — like gin and tonic or fish and chips.
In order to get a true understanding of a company’s worth it pays to understand the worth of the currency you’re using to value the company.
We doubt if there are more than a handful of value investors in the world who think just as much about the value of money as they do about the value of the stocks they analyse.
But if you’re a genuine value investor, it’s vitally important to think about the value of the currency.
Think about it, a company can grow its revenue and profits as much as it likes, but if the value of the currency declines at a faster rate than the company’s profit growth then it won’t count for much.
Are Australian stocks ‘fundamentally’ overvalued?
In the latest issue of Sound Money, Sound Investments Greg Canavan takes an in-depth look at the Australian dollar.
And to be frank, he isn’t doing somersaults at what he sees.
Put simply, Greg says that the Australian stock market and currency are heading towards what you could call ‘peak stimulus’. At the moment the market believes the Australian economy has successfully transitioned from a commodities economy to a real estate economy.
But according to Greg you can expect to see that optimism wane over the coming months. That’s especially likely in the Aussie housing market, which should weaken through the rest of this year.
Remember, rising house prices need credit to grow. That typically means interest rates have to stay low and perhaps go even lower. Greg doesn’t see that as likely.
The only other way Australian house prices can grow is if economic productivity improves. But as Greg says, ‘Australia’s productivity performance in recent years has been terrible.’
It’s for that reason that he sees stocks as ‘fundamentally overvalued at this point.’
In fact, Greg says that the stock valuation system he uses ‘suggests the ASX remains between 25% (best case) and 44% overvalued!’
It’s a sobering thought if you’re thinking about buying stocks. So why are we telling you this? After all, by now you know that your editor has a bullish view on the market that’s almost directly opposed to Greg’s view.
What is your advisor hiding from you?
The reason for giving you both sides of the story is simple.
It’s up to you as a self-directed investor to take both views into account before making up your mind on what you should do next.
This is something that you’ll never get from most financial advisors or from the mainstream press. With most financial advisors you just get the ‘house’ view. That is, the company’s chief economist will set the market viewpoint and all the advisors must adhere to that view — even if they don’t agree with it.
That’s not the way we work. We don’t have a house view. We have a team of independent analysts who form their own views based on their research.
The analysts then present these views and the investments ideas to you. It’s up to you to decide which of the views have the most compelling argument. Once you’ve figured that out then you can invest accordingly.
And whatever you do the final decision will be yours. You’ll know that you’ve taken into account all the issues before you make up your mind. That puts you in a different league compared to most mainstream investors.
For the most part mainstream investors only ever see one point of view — the ‘house’ view. When things go wrong they wonder why they’d never heard about the big economic problems before. Mostly it’s because their advisor didn’t know about it or because the advisor kept it from them.
So when a key and potentially unexpected event happens, those investors are mostly completely unaware, unprepared…and their finances suffer accordingly.
That’s something we don’t want happening to you.
Our view and analysis is that Aussie stocks are heading into another huge bull market. But what if we’re wrong? By introducing you to well-thought out and varied views we can help reduce the chances that a key economic event will catch you unawares. Greg certainly makes an interesting case.
Cheers,
Kris+
From the Port Phillip Publishing Library
Special Report: Secure and Protect Family Wealth for Generations
