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How a footie loss and deflation show us how to invest
As I watched the Sydney Roosters slump to another loss on Anzac Day, I thought a couple of things.
First, I’m glad I also support the Sydney Swans, which as a team has been a model of consistency for over a decade, maybe more.
Second, when it comes to following footie teams, like with investing, you don’t need to win the grand final every year but you like to get more wins than losses and you like to believe that you are a chance to win a premiership or flag occasionally.
Buy, Sell or Hold
I know short-term traders who try to shoot the lights out and many of them might have bought BHP Billiton at $15 and then sold out at $20, pocketing 33% in a couple of months, which is akin to a grand final win.
However, others who are more gradual wealth builders, might have waited until BHP hit $17 before believing in the trend and so might have made a nice 15.5% gain on paper because they are buy and hold types, which is a pretty good result for a less adventurous investor.
However, the gloss could be taken off the fact that this same investor could still hold BHP stock he or she bought at $30!
The dining boom?
The reality is the trader who pockets a 33% gain in a couple of months also wears some big losses — ask those who punted on Apple and Twitter recently, and let’s not talk about the 35% plus slide Murray Goulburn this week.
What happened to the dining boom that was going to replace the mining boom?
Well some agri-based companies are serving up great profits via sales to China, but I guess some silly management can get in the way of some companies.
This is all well and good, but what’s the point of this footie loss inspired piece of investment analysis? And why now?
Deflation data
It’s simple, with the huge news this week that inflation in Australia fell 0.2% or was deflation in the March quarter, safe term deposit investments are going to come with lower interest rates.
This is not inflation but deflation and so now we have three chief economists tipping a rate cut on Tuesday — Budget day.
Anyone wanting to believe that the day when term deposits start to rise to such a level that will mean we can have less exposure to stocks has a really long wait ahead.
Look for dividends
So, what does that mean? Again it’s simple. We have to search for assets that provide dividends and you’d ideally like to see some capital growth as well.
You can always look at property with rent being the equivalent dividend but APRA is doing a lot to close down the once strong housing boom.
This week we saw Westpac close its books to Chinese borrowers and it’s not the only one, so I suspect house price rises will be on the slide going forward.
Banks and Budget
Next week we will see what the banks are saying about their business’s performance, making next week a week of B’s — Banks and Budget.
All of the related bank revelations in the news could make or break the market and I’d be inclined to wait to see what happens with the bank reports before being too brave in going long banks this week.
Sell in May and go away?
We also have that “sell in May and go away” rule that could easily encourage market influencers to try a sell-off of the banks and this could worry the market.
Against that, Lance Lai of Accountancy Invest, the king of charts, made an appearance on my TV show this week and he thinks the technical analysis says it’s looking OK for the S&P/ASX 200 index.
I’m very hesitant to jump on the dump the banks bandwagon because history has shown that they have delivered what I want — dividends and growth. In coming weeks I will look for others that should be seen as reliable dividend payers and have also been good for growth as well.
Telstra vs. term deposits
And by the way, there are plenty outside of the top 20 stocks. That said, I like Charlie Aitken’s take on Telstra last week in my Switzer Super Report newsletter where he suggested a 20% pay-off over 18 months is in the offing when you add a small capital gain to the expected dividend and then throw in the franking credits.
By the way, even if he is only half-right — 9% over a year and a half or 6% per annum — it still looks pretty damn good compared to term deposits.
Stock portfolio
When I have created portfolios for clients in the past it has been with the Swans in mind. I like stocks that are reliable performers, who give you a nice dividend for supporting them and occasionally they give you a nice big win, which is like savouring a grand final victory.
If I were objective I could argue that Hawthorn-like stocks could even be better but that would be carrying good sportsmanship too far!
Peter Switzer is the founder of the Switzer Super Report, a newsletter and website for self-managed super funds.
