Half way through the ASX’s lost decade

Half way through the ASX’s lost decade, investors could be forgiven for throwing in the towel. It would be a big mistake, writes The Motley Fool.

Happy new year!

After a challenging 2011, where the S&P/ASX 200 slumped 14.5 per cent, will 2012 bring any cheer for weary investors?

All will be revealed below, and over the next 51 weeks of the year. Stay tuned, as it’s sure to be a riveting story, and a rollercoaster ride.

2011 was just the second time in 30 years the Australian sharemarket delivered consecutive calendar years of negative returns. Ouch.

Not surprisingly, investors responded by pulling money out of the market.

U.S. equity funds had outflows in every month since May, with more than $483 billion exiting U.S. mutual funds in 2011. And that was despite U.S. markets finishing flat on the year, a way better performance than most of the rest of the world, including Australia.

If you can’t stand the heat…
If there’s one thing investors hate it’s volatility. They can’t stand watching their portfolios falling 2 or even 3 per cent in a single day’s trading. So they sell, usually when the market is crashing.

Sadly, they sell at precisely the worst possible time.

Humans are emotional beasts. Studies have shown the pain of losing money is far greater than the thrill of winning. It’s why many people sell at the bottom of the market.

We admit it’s not a lot of fun watching your portfolio tank, especially coming on the back of the GFC. The S&P/ASX 200 is still a long way down from its October 2007 peak of close to 6,750. Come 2017, we could be staring back at our own lost decade.

Are we worried? Not particularly.

Are we selling? Not now.

Are we buying? Absolutely.

If nothing else, in 2011 we hope we helped you stay the course when the chips were down, and gave you some buying ideas when stocks were on sale. We expect more of the same in 2012.

Chewed up and spat out by the bear market
The sharemarket creates wealth over decades, not days, weeks and months.

Given that, it’s not a question of whether or not to invest – it’s a question of how to invest.

As members of our premium Share Advisor service will know, we see plenty of opportunities, especially in beaten down smaller companies. These are growing companies, often paying a decent dividend, yet they are neglected by the market.

M2 Telecommunications Group (ASX: MTU) is one such example. Many Take Stock readers will have read about Australia’s largest network independent telecommunications provider for retail and wholesale fixed-line, mobile and data telecommunications services in our free report.

Motley Fool Investment Analyst Dean Morel is excited about the low valuation and premium dividend yield. Even though M2 shares have risen nicely from $2.60 in November to around $2.95, they are still down from their all time high of $4.08 in March 2011. Dean values the company at between $3.80 and $4.20 per share.

More bargains please
It’s exactly those types of growing yet cheap companies that Dean recommends to members of our member-only Share Advisor service. Share Advisor is currently closed to new members, but if you want to be alerted when it re-opens, please click here and enter your email address. No obligation of course.

Market Crash?
As for the likelihood of a market crash in 2012, we doubt it. But anything can happen, as witnessed by the volatility in 2011. At one stage, the market was down 20 per cent from its April 2011 high, putting it officially in bear market territory.

If you are worried about a sharemarket crash, you might want to request our free report before it’s too late. Read This Before The Market Crashes says it all. Click here to request your free copy now, before it’s too late.

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