Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

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.

Sunday, 22 February 2015

Dow Jones to new record high

Low rates pushing asset prices

The older I get - and as we saunter through these unusual days of stimulus and quantitative easing - the more I am becoming convinced that the best strategy for most average investors is to dispense with strategies which rely heavily on market timing.

Far better for most of us to construct a strategy and a portfolio around buying assets which can be held onto forever...for as long as you live!

It was the middle of 2011 when articles starting surfacing about "bubble deniers", a double-dip recession and a calamitous stock market crash.

In actuality, stocks were trading at - relatively speaking at least - moderate price-earnings ratios at that time, as the Dow quietly ghosted past 12,000.

Yet here we are quickly approaching Q2 2015 and the Dow Jones Industrial Average (DJIA) has surged from 12,000 to another all-time high of 18,140.44.

That's an index gain of more than 50 percent, and substantially more in accumulation terms. If you sold...ouch!


Averaging for average investor

I have found it to be absolutely true that as one's net worth increases, correspondingly the appetite for risk decreases.

I seriously must be getting old, as I've been having repeated and uncontrollable urges to trade in a non-sensible car which is a drain on the personal finances for a far more practical Volvo SUV.

Not dissimilarly, while a decade ago I was very interested in hot trading tips and trying to find "the next ten bagger" today I only feel interested in acquiring quality assets which I can hold onto for as long as I live, even in the unlikely event that proves to 150 years old (h/t Joe Hockey!).

Buying the index

Last month, for example, I set up another index fund in the UK.

The UK FTSE is inching ever closer to its record high index value of 6,930 which it reached more than 15 years ago in December 1999.

Despite that, stocks are far from being stupidly over-priced, with the basket of Britain's largest companies trading at approximately 16 times earnings, bench-marked against a long run average of around 15 times earnings.

The basic plan is essentially to contribute one shilling per month to the fund for the next couple of decades, possibly upping the contribution to two shillings per month when the next downturn comes.

When the next crash happens, perhaps I may even look to drop in half a crown when the index is trading on the cheap again.

For the average investor it is probably true to say that the further your strategy diverges from such a simple approach, the greater the propensity for it to blow up.

Disclaimer: always seek professional advice from a licensed advisor before making investment decisions.

Herd instincts

Goodness knows how far this US stock bull run will go, but this era of low interest rates certainly looks to be one where asset prices are going long.

2015 also looks set to be another positive year for Australian household wealth, with dwelling prices rising and stock markets on the up too.

As the old saying goes, "the trend is your friend...until the end when it bends".

While on the subject of herd instincts and Australian household wealth, I was amazed to read the following statistics in the Sydney Morning Herald yesterday:

"...phenomenal growth in self-managed superannuation funds (SMSFs) is leading many members of large super funds to ponder whether they could do a better job of managing their super themselves. 

The number of people with DIY super funds has grown by more than 30 per cent during the past five years to more than 1 million, collectively worth a whopping $568 billionMore than a third of Australia's pool of superannuation money is now held in self-managed funds."

Wow! As for what folk are investing their pension funds in:

"As at March 2014, the three main asset categories represented 76% of all SMSF assets - 32.1% of fund assets were held in direct Australian shares, 28% in cash and term deposits, and 15.9% in direct property. 

In the past 6 months, allocations to direct property have increased from 15.3% to 15.9%."

I note here that "property" is likely to be largely commercial property, but nevertheless with a total of up to ~$90 billion invested in direct property via self-managed superannuation funds, this trend certainly has the potential to distort certain real estate markets at the margin.

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Stormy weather

We have had some wild weather indeed around Brisbane and the Sunshine Coast over the last few days, and certainly enough to put paid to this weekend's cricket clash at the Gabba (shame, as I had tickets).
But although it rained solidly for around 30 hours, we were back to blue sky again this morning, which was good to see.

Some of those located further north have been less fortunate.

Although according to the ABC the category 5 Cyclone Marcia now been downgraded to a "tropical low", the wild weather has been causing flooding from the Mary River in Gympie, 60,000 have lost power in Rockhampton and Yeppoon, and an overflow of the Callide River caused severe flooding in Jambin.
Meanwhile residents of the Top End have been struggling with the impacts of the category 4 Cyclone Lam. 
As I saw first hand during the Cyclone Yasi clean-up of 2011, these times of crisis often bring out the best in so many Aussie communities. Hope for calmer conditions ahead.

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The week ahead...

This week there is a range of interesting data due out to look forward to, including the Average Weekly Earnings release and the Wage Price Index for the December quarter, which is currently tracking at a survey low of only 2.6 percent growth.

We also have the latest data on Construction Work Done for Q4 - my analysis of the Q3 figures showed there to be systemic risks in two areas in particular.

There is plenty more to look forward to besides, including the Q4 Capex figures (always one of the most interesting ABS data releases) and more besides.

Should be a very interesting week, so stay tuned...!