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The Forest and the Trees

Many investors cherish the notion that if they only had instant access to the information sources of market professionals—the stock research and broker calls and economic forecasts—their wealth-building dreams would be much further advanced. So, what if you had acted on those big professional calls in the past year?

Financial information group Bloomberg1 recently carried out an analysis of broker recommendations for stocks in the US equity benchmark, the S&P 500 index. It found that the companies that analysts recommended most highly rose by 73 per cent on average in the period from the trough of the market in March 2009 until early 2011.

That sounds pretty good until you realise that the index itself rose by 88 per cent in the same period. Now, compare the performances of the most loved stocks against those with the fewest buy recommendations in the Bloomberg survey. This latter group rose by 165 per cent on average during that period, or more than twice as much as the “top” stocks.

Why analysts get it so wrong can be easily explained: [Read more…]

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The Price of Bad Advice

Question: How to compare the price of a client-centred fee-only financial advisor with the “free” services supplied by a broker?

Answer: In the second instance, the bill comes much later and at potentially far higher cost.

Pursuing sales people masquerading as advisors has been a major focus in the past year for the Australian Securities and Investments Commission, a watchdog which shares this column’s view about the risks of investing “outside the flags“.

In one of its most high-profile recent actions, ASIC instigated court proceedings against the promoter of a fraudulent investment scheme that robbed hard-working Australians of more than $100 million in retirement savings.

[Read more…]

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Investing in Gold

Gold digging

“Gold gets dug out of the ground in Africa, or someplace,” Warren Buffett once said. “Then we melt it down, dig another hole, bury it again and pay people to stand around to guard it. Anyone watching from Mars would be scratching their head.”

The price of physical gold has risen five-fold since 2001 and continues to reach new heights. There is significant interest in gold today as a means of possibly hedging against depreciating global currencies and inflation. The concern now is that for those investors who choose to load up on gold today may be placed in a disadvantageous position if history repeats itself. After gold hit a then-record high in 1980 of US $850 an ounce, it fell and failed to recover for more than 20 years. [Read more…]

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Housing affordability

The residential property market in Australia is easily the most favored asset class by Australian Investors. Residential property is a tangible asset that people can see and experience. Most Australian property investors experience from the past 10 years has given the investor the inner belief that by holding the asset they will reap incredible rewards well into the future. They believe they understand the asset class and will benefit similarly into the future by holding the asset. Most of the last 10 years have been an extraordinary time for property investors with property returning well into the double digits.  Rents have also risen at astonishing rates making negatively geared properties cash flow positive after only a few short years. What were the main factors driving property prices so high and in my view highly overvalued by historical standards? [Read more…]

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