So much for the stock market correction, huh?
Normal service has been resumed.
Soon, last week's 300 point fall in the Dow will be a distant memory.
What's not so distant is the spectre of continued low interest rates for months, possibly years to come.
Talking on ABC News Radio this morning, Martin Lakos of Macquarie Private Wealth said he didn't expect the RBA to raise interest rates until into 2016.
The RBA meets today. It's a non-event. Interest rates will remain on hold. Glenn Stevens may try jawboning the Aussie dollar, but he'll be wasting his breath.
There are only two ways the Aussie can quickly fall…
1) A global stock market correction, where money will flee the higher-risk Aussie dollar and flow back to the relative safety of the US dollar.
2) The RBA cuts local interest rates.
Both are a possibility, but far from a foregone conclusion. I certainly wouldn't be hanging around, waiting for either one to happen.
That said, a stock market correction, were it to happen, could be the catalyst the RBA is waiting for to cut local interest rates.
This 'perfect storm' would likely see the Aussie dollar plunge to around US85 cents, maybe lower.
All of which means, don't leave it too late to stock up on US-quoted shares, while the Aussie dollar is still strong.
"Correction projection" goes the headline in today's AFR, with Wilson Asset Management chairman Geoff Wilson saying…
"At some point in time volatility is going to pick up and the fact that all the shorts have had their arms ripped off it means that everyone's far too bullish or positive. It sets the scene for a correction – to me that's where we are."
The hardest part with predicting corrections is getting the timing right.
That a correction will come is a given. On average, they come along every year or so. We're due, on average.
That said, take a look at the chart below and tell me it screams stock market correction…
Yes, some stocks have run hard, especially the old blue-chip dividend paying favourites including Commonwealth Bank of Australia (ASX:CBA) and Telstra Corporation Ltd (ASX:TLS), but a one-year gain in the S&P/ASX 200 Index of 8.6% hardly suggests markets are suddenly about to crash.
In the same AFR article, Jamie Nicol of Dalton Nicol Reid said…
"Even though we're a reasonable way since the last recession, it still in many ways feels like we're in the early parts of the economic recovery."
For the optimists amongst us, there's always a silver lining…
1) Stock market corrections, if and when they come, give us the opportunity to buy quality shares on the cheap.
2) In the absence of a correction, a slow and steady economic recovery, both here and in the US, sees interest rates staying lower for longer, meaning high yielding dividend paying stocks, by comparison, continue to look attractive.
3) If everything goes to plan, the market keeps climbing its wall of worry. Slow and steady wins the long-term investing race. 8.6% over the past 12 months, not including dividends, fits the bill perfectly.
Of course, you can sit on the sidelines, waiting around for the next stock market correction.
However, I must warn you.
It might get pretty boring. You might get sore hands. You will earn a mere 3% in a term deposit account, if you're lucky. Out of greed, you might be tempted to get back into the market when it's riding much higher. Out of fear, you might not get back into the market if and when the market does correct.
So many decisions…
I like to make my investing life simple. Don't try to predict the unpredictable. Invest for the moment. Hold for the long term. Foolish investing.
There's a reason US President Barack Obama only ever wears grey or blue suits.
As he told Vanity Fair…
"I'm trying to pare down decisions. I don't want to make decisions about what I'm eating or wearing. Because I have too many other decisions to make."
I don't quite have the responsibility of Barack Obama, nor the number or magnitude of decisions. But when it comes to investing, I take a leaf out of the President's book — pare down decisions, and make it simple.
- Commit to investing in the stock market, for the long-term.
- Make regular, monthly investments in the market, ideally on the same day every month (my suggestion is the first Tuesday of the month).
- Either buy a new stock or add to an existing holding, and/or;
- Set up a direct debit to invest money into a low-cost index-tracking fund.
- Sit back and enjoy the returns.
Simple, effective, Foolish Investing.
Overnight in the US, the S&P 500 Index rebounded from its biggest weekly loss in two years, with Warren Buffett's Berkshire Hathaway leading the way, its shares jumping 3% higher.
Money manager Chad Morganlander told Bloomberg…
"The economy overall is moving forward with better-than-expected earnings, and we see an upward bias continuing over the next couple of months."
So much for the coming correction, huh?
Berkshire Hathaway Class B shares jumped to an all-time high, closing just shy of $130. Given it's my largest holding, by some distance, my portfolio is doing a little happy dance today.
Berkshire Hathaway is part of my huge $400,000 bet — you may have read about it on Saturday. It's a stock I've held since February 15th 2000 — through numerous stock market corrections, the dot com bust, 9/11 and the GFC — and one I intend holding for decades to come, long past the day 83 year old Warren Buffett ceases to be involved with the company, perish the thought.
Buying and holding Berkshire Hathaway shares is one of those Barack Obama blue and grey suit decisions. Set, forget, sleep well at night. Live happily ever after.
Simple, Foolish Investing, at its best.
