Sharemarkets are on the up, including the ASX. The end of the world has been delayed, again. Mark it up as another win for the optimists, writes The Motley Fool.
Overnight Tuesday, the Dow rose to its highest level since 2007, soaring 218 points to 13,177, its fifth day of gains in a row.
Two specific economic reports provided most of the fuel for the rally.
U.S. retail sales rose strongly in February, increasing at the highest rate in five months, driven largely by boosts to spending at car dealerships, petrol stations, and clothing retailers. Additionally, small-business optimism rose once more in February.
If only we Australians could find a sense of optimism. A recent chart on ABC news showed business confidence was higher in France and Germany than in Australia. Work that one out. Are we just a bunch of whinging Aussies who’ve had it too good, and too easy, for too long?
One day we’ll realise things aren’t as bad as we think they might be. The Americans already get it…or at least their sharemarket gets it.
Financial crisis? That was in the past. American investors are partying in the street.
Even Australians have joined the party the last two days, the S&P/ASX 200 now close to 4300. And for Maverick Drilling & Exploration (ASX: MAD) investors…they are positively pinching themselves, the shares up almost 300 per cent year to date.
Gold down, world saved
The one notable exception? The ‘safety’ of gold. Down again, as, disappointingly for the pessimists, the end of the world has been delayed, yet again. One day they might be right…but we’re not holding our breath.
You gotta feel for the doomsters. Rather than buying shares when the market was cheap, they bought gold when it was expensive. Never doubt the ability of humans to buy high and sell low.
Of course, the time to be really worried was back in mid-2007. Shares were riding high. The warning signs were there for all to see — two Bear Stearns subprime hedge funds had lost nearly all of their value amid a rapid decline in the market for subprime mortgages.
Yet the market, and investors kept partying…until eventually the music stopped. The rest is history.
You don’t make money looking backwards. Yet so many people do exactly that. They look at the recent past, and extrapolate that deep into the future.
There’s no doubt shares have had a rough ride since 2007 – the S&P/ASX 200 index is down over 35 per cent since it peaked in October 2007.
And there’s no doubt the global economy still faces challenges, not least unsustainably high sovereign debt levels in Europe, the USA and Japan.
But does that mean you should avoid shares today?
We’d argue not. History is littered with things that didn’t happen. Worrying about what might go wrong is a futile exercise. Listen to the doomsters all you like, but the plain facts are most ‘expert’ predictions are the equivalent of random guesses. And those making the worst predictions have one grand theory that they trumpet through thick and thin.
We have no major theories. We avoid predictions, interest-gate aside, a lesson well learned.
Where we see opportunity to buy great companies at good prices, we have no hesitation in pulling the trigger – whatever the macro environment, whatever the market, whatever the doomsters are saying, and whichever political party is in power.
It likely remains the case that the best time to buy, as ever, is ‘now’ – if the company is right, and the price is right.
It’s a strategy that’s served Warren Buffett, Peter Lynch and many other great investors well over the years. If it’s good enough for them, it’s good enough for us.
Bruce Jackson is The Motley Fool’s General Manager. Bruce owns shares in MAD. The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). The Motley Fool’s disclosure policy is always calm.