The Australian stock market has hit another multi-year high.
It’s back to where it was in mid-2008, before stocks crashed.
It closed yesterday at 5,536.10.
So, has the run towards 15,000 points begun?
It’s hard to say. But we’re sure it has many cash-heavy investors worried that they’ve missed the boat…
The one thing you’ve probably noticed about Money Morning is that the contributors don’t discuss their personal share investments.
That’s fairly unusual compared to most of the other financial newsletters in the Aussie market.
So, why do we keep quiet? There’s a simple reason. It’s mainly because we don’t want you to construe passing mention of a stock as a nod and a wink that you should also invest in it.
Plus, there’s the issue of conflicts of interest, such as the impression that we may be trying to ramp up a stock price by touting it and hoping that you’ll rush in to buy it and push up the price. Then we could sell.
That would be unethical. So by and large we steer clear of mentioning stocks where we hold a personal investment. Just to avoid giving the wrong impression.
However, today we will bend the rule slightly…ever so slightly.
As we mentioned above, the Australian share market closed yesterday at 5,536.10 points. That’s the highest level since mid-2008.
It also means the S&P/ASX 200 is now up 3.4% since the start of the year. In fact, from the low point in February, the Aussie market has rallied 8.6%.
But how is that possible? The news has been full of stories about Ukraine, Russia, a tech stock bubble, an Aussie house price bubble, and slowing Chinese and Australian economies.
It’s enough to make most investors flee for the hills and give up on the stock market.
And yet, if price is any measure of investor sentiment, then investors haven’t fled for the hills. And they most certainly haven’t given up on stocks.
That’s the interesting thing. While we aren’t obsessive about watching our own stock portfolio minute-by-minute, we do take a keen interest in the value. After all, like you we’re growing our asset base for retirement too.
So, we tend to check our personal stock portfolio perhaps once or twice per day. Not that we do much with it. A few times per year we’ll add to a position, buy a new stock, or sell something that just isn’t working as we expected (yes, we make mistakes too).
That’s probably a similar way to how you treat your stock portfolio.
But here’s what we’ve noticed: while the press has hooted and hollered about the terrible things happening in the world, like the main Aussie index, the overall value of our personal portfolio has gone up.
Sure, that doesn’t mean every stock has risen (a couple of our speculative positions have taken a bit of a hammering). But most of them have gone up. Again, we dare say you’ve experienced the same thing too.
This is what makes it hard to take seriously the mainstream blather about an impending stock crash.
Stocks will crash one day. But we’re fairly certain you won’t read the warning for it on the front page of the Sydney Morning Herald or the Age.
The first time you’ll see talk of the next major crash in mainstream press is after the crash has already happened.
That’s just the way it is. It’s the job of newspaper folks to report on the news, not to identify trends or conduct in-depth analysis. So when they do try to predict a big event they typically make a complete hash of it.
This is something we discussed at the recent World War D conference in Melbourne four weeks ago.
Investors and analysts have become obsessed with trying to find the next asset price bubble and the next calamitous crisis that will send stocks crashing.
We don’t know why they bother. It’s not hard to find either. The problem is in the continued money printing by central banks. That’s the cause of any asset price bubble, and it will be the cause of the next crisis.
That’s as far as anyone needs to look. But here’s the thing. While we agree that these central bank policies are terrible they are having one ‘positive’ effect — they are pushing up stock prices.
As we say, that’s obvious. We can see it in our stock portfolio, which continues to edge higher despite the rumblings everywhere of a crisis.
So given that information — that central banks are pushing up stock prices — what should be the logical conclusion? To sit in cash and hope for a crash? Well, you could do that. But we prefer the other option. We prefer to make the most of the situation and buy into these stock opportunities.
There’s no doubt it’s high risk. But owning cash is high risk too, especially as living costs, taxes (see the rumours about the Aussie government’s ‘deficit tax’), and price inflation continues to rise.
In that environment, we want to own assets where you can get growth and income, and potentially reap the ‘benefits’ of these inflationary pressures.
And the simplest and most cost effective way to do that is in stocks. We’ve said it for some time now ; keep looking for the next crisis all you like. While you’re doing that we’ll keep enjoying the benefits of rising stock prices and dividend cheques dropping into our bank account.
Stocks or cash? It’s not a hard choice.
Cheers,
Kris+
From the Port Phillip Publishing Library
Special Report: Secure and Protect Family Wealth for Generations