Pete Wargent blogspot
Co-founder & CEO of AllenWargent property advisory, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.
4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.
"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.
"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.
"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.
"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.
"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.
Invest in Sydney/Brisbane property markets, or for media/public speaking requests, email firstname.lastname@example.org
Wednesday, 14 March 2012
Averaging down: how it can be done effectively
The term dollar cost averaging – the practice of paying the same amount in to an investment at regular intervals – has had a very bad press since 2008.
The reason for this is quite simple. Numerous financial advisors urged their clients to continue plunging funds in to sinking investments through the financial crisis in the vain hope that they would ‘come good’, with some disastrous consequences.
The problem with this was that some of the so-called blue chip companies went bust under mountains of debt, or, at best, performed extraordinarily badly, and clients lost vast sums of investment capital.
An example of a company that was mistakenly seen as a safe bet was General Motors. Investors felt that because the company maintained its dividend payments to the bitter end, it must have been a sound investment.
Not so - the company was effectively funding the dividend payments with billions of dollars of debt that ultimately could not be serviced. Analysts recognised this and the bleak outlook was reflected in the plummeting value of its stock price. A painful lesson.
An advantage of averaging in to an index fund is instant diversification. By holding a stake in an index of companies, you can be certain that your investment will never amount to nil.
Of course, there is nothing too exciting about index fund performance – by definition you can only match the return of the market to which the fund relates – but at least you will not be charged extortionate fund management fees for the privilege of your investment.
In an investment or index with a long-term upward trend, averaging works because your dollars buy more units when the market is cheap and fewer when it is expensive. It’s always fascinating to look at historic share index charts – for example, note how the worldwide stock crash of 1987 now appears to be a tiny blip on the long-term relentless march upwards.
Investors are believers in the concept of reversion to the mean. Markets will become expensive and cheap periodically, but over time will oscillate around a median fair value, which in an inflationary environment will increase over time.
With regards to index funds, as Buffett says: “When dumb money acknowledges its limitations, paradoxically, it ceases to be dumb.”
The Australian markets have been relatively subdued of late due to the strength of the Australian dollar which has discouraged foreign investors.
Consequently, the market is trading at earnings ratios significantly below the long term average of 14-15 times earnings.