Good riddance September, a horror month for many stock market investors.
You can't say it wasn't coming.
Regular readers of this Motley Fool Take Stock email will know I've been endlessly banging on about…
- The risks in bank stocks;
- The over-valued Aussie dollar, and;
- That a stock market correction is overdue…
Given that, nothing of what transpired in September should have come as a surprise to anyone, least of all loyal Motley Fool Take Stock readers.
A surprise, no. But painful, probably yes. Such is an investor's life.
Over the course of the month, the S&P/ASX 200 Index fell almost 6%. For the quarter, the 1.9% loss was the worst quarter for shares since the 3.3% fall in the three months to June 2013.
Good riddance September indeed…
A few hours into October, the new month was not looking much better, the benchmark index slumping almost 50 points at the open, falling as low as 5,244.
What's next? ASX 5,000? Hold on to your hats, Foolish readers.
On the bright side, the more the index falls, the closer we are to that overdue 10% correction. By my calculations, the benchmark index enters correction territory if it falls as low as 5,111.
Only 133 points to go from today's low… and at the rate we're going, it could be all over later this week or early next week.
And then we can all get back again to the job of picking long-term stock market winners…
Or, maybe not.
As corrections go, and I've seen PLENTY in my 25 years of active investing, this is as orderly as they come.
Not once has there been a whiff of PANIC.
Not once has there been that moment when you FEAR the worst.
Not once has there been INDISCRIMINATE selling, regardless of the underlying fundamentals.
Or perhaps that's just me.
I'm underweight banks.
Apart from BHP Billiton (ASX: BHP), I've got zero weight in iron ore stocks. I'm not feeling any of the pain shareholders in Atlas Iron Limited (ASX: AGO) and Mount Gibson Iron Limited (ASX: MGX) have been subjected to so far in 2014.
I'm overweight US stocks. Not only is that market still trading close to its all time highs, but the rising US dollar means my portfolio, in Aussie dollar terms, is still riding high.
Luck?
You decide, but I'll take it, having deliberately positioned myself to benefit from the fall in the Aussie dollar, well in advance of the recent tumble. I can't help chuckling to myself about all the Johnny Come Latelies jumping on the falling dollar band-wagon. What's taken you so long?
And then there's those juicy fully franked dividends. They just keep on coming, regardless of what's happening to the overall market.
The last time I looked in my family's bank account, I saw a fully franked dividend payment from Telstra (ASX: TLS) and one from BHP Billiton had appeared, just like magic.
In this low interest rate environment, fully franked dividends truly are the gift that keeps on giving.
And yet… suddenly, high yielding stocks are seemingly out of favour.
Witness the bank stocks, all down 10% from their recent highs, although the correction in the share price of the likes of Australia and New Zealand Banking Group (ASX: ANZ) and Commonwealth Bank of Australia (ASX: CBA) has more to do with regulatory concerns and an over-cooked housing market than just a lost appetite for yield stocks.
Witness the aforementioned Telstra shares — down 8% in a little over a month.
Witness Super Retail Group Ltd (ASX: SUL) shares — the owner of Rebel Sports and Supercheap Auto, amongst other leading retail brands — down 14% over the same period, now trading on a fully franked dividend yield of 4.84%. Add in the franking credits, and the yield grosses up to 6.9%, putting the 2.5% returns on term deposits totally to shame.
If you're anything like me, you don't care where the gains, and the dividends come from… you'll take them any way you can.
Sure, I get that investors are drawn to hot stocks like Liquefied Natural Gas Limited (ASX: LNG) and speculative mining stocks like Carnarvon Petroleum Limited (ASX:CVN). You pay your money and you take your chances.
Good luck, I say especially given The Age is reporting a survey from Grant Thornton as saying about 74% of listed Australian mining juniors will need to raise capital this financial year.
When it comes to finding the next Fortescue Metals Group (ASX: FMG) and next LNG, the words needle and haystack spring to mind.
There is another way. A less risky way. One that pays you rising dividends, often fully franked. With downside protection, and upside potential.
Sure, you're not going to do the 1300% LNG has packed on this year. But those quick windfalls are few and far between, and always require huge swathes of luck. When it comes to investing my hard-earned money, my due diligence extends to more than just getting lucky.
There's nothing like buying stocks when many others are selling — it's times like these the bargains inevitably emerge.
That said, in the time I've been writing this missive, the S&P/ASX 200 Index has made a miraculous recovery, now up on the day.
It seems like the long-awaited stock market correction, if it comes, will have to wait for another day.
What's also going to have to wait is any rise in interest rates. The Age reports retail sales numbers for August have "disappointed massively," gaining just 0.1%. In July, they gained 0.4%.
It's another nail in the coffin for term deposits, and another reason why, when the dust eventually settles from this bout of stock market volatility, that equities, and particularly higher-yielding stocks, will again become the only game in town.
