It?s been another familiarly strange week on the markets.
The big ?news? this week was either that Reserve Bank governor Glenn Stevens was joking or that he has a sense of humour. In any case, the now infamous six words that moved the currency markets ? ?deliberated for a very long time? ? caused the Australian dollar to fall and ANZ to change its rates forecast (before changing it back), while other commentators waxed lyrical on exactly what Glenn Stevens meant.
Reading the tea leaves
In the wash-up, the verbal sextet in question was nothing more than a quip, and all was…
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It’s been another familiarly strange week on the markets.
The big ‘news’ this week was either that Reserve Bank governor Glenn Stevens was joking or that he has a sense of humour. In any case, the now infamous six words that moved the currency markets – “deliberated for a very long time” – caused the Australian dollar to fall and ANZ to change its rates forecast (before changing it back), while other commentators waxed lyrical on exactly what Glenn Stevens meant.
Reading the tea leaves
In the wash-up, the verbal sextet in question was nothing more than a quip, and all was put right with the world. While I’m sure many economists then indulged in behind-the-scenes hand wringing and one or two may have resorted to calling Governor Stevens names behind his back, the episode really does expose the ‘tea leaf reading’ for what it is.
Countless hours (and column inches) are devoted to trying to guess what each RBA statement might mean – how long or short the statement is and what words are added or removed when compared to previous statements. To be fair, the RBA (and its international counterparts) do use such ‘jawboning’ to guide the markets in one direction or another, so the tea leaf reading does have some relevance, but the process is far from perfect, and those trading on such assumptions really are gambling on what might (or might not) happen, as this week’s kerfuffle showed.
Full of sound and fury
Meanwhile, equities markets as measured by the S&P/ASX 200 have had another week of highs and lows thus far. Monday’s loss of 1.9% was put into the shade by a 2.6% gain on Tuesday. Not to be overshadowed, Wednesday bought us a second 1.9% loss, before a 1.1% gain on Thursday.
The net result? For all of the billions ‘made’ and ‘lost’ by investors this week, as of last night the ASX 200 has lost a grand total of 0.1% since last Friday. So what exactly has all the fuss been about? Exactly.
Of course, not every company neatly tracks the index – which is good news for investors who are able to buy shares cheaply when the market over-reacts or sell them at a premium when the herd swings the other way.
Famine and feast
Billabong’s slow-moving-car-crash woes have continued, with the shares languishing not far from one one-hundredth of their all-time highs as even its bankers head for the hills. The company’s lenders have passed the debt to large funds with strong stomachs, and those funds are likely to convert the debt into equity, much as they did with Nine Entertainment Co, massively diluting shareholders in the process.
On the flipside, Flight Centre’s stellar run continues, with shares up another 5% this week, turning a $10,000 investment at the low point in March 2009 to over $120,000 today. Not bad for just over four years’ work!
And then there’s Europe, where the revolving door of politicians and headlines continues. Enough said.
Don’t just sit there, trade something… anything
I don’t envy short-term traders or currency speculators. It must be a tough gig. I’m happily in the long-term buy-to-hold camp – taking long-term positions in quality businesses at attractive prices when the market affords me the opportunity.
In a Twitter-fuelled world full of people with a bias for action, long-term investing almost seems quaint. Unfortunately, I know of no scientific study that proves action beats inaction when it comes to shares. And there is ample evidence to suggest frequent trading results in a sub-par return, especially when taxes and brokerage commissions are taken into account.
Warren Buffett talks about treating investing as if you could only buy shares in 20 companies in your lifetime. Knowing that each purchase was that important would make investors much more careful about what they were buying and how much they were paying.
When many investors are hitting Buffett’s ‘limit’ every year or even every month, it should be no surprise that a large proportion of them fail and give up.
Investing is as rewarding a pursuit as you can imagine. But like playing a sport or learning the piano, learning how to do it well yields better results than just sitting at the keyboard hoping to play a concerto by instinct and guesswork.
If this week – like many, many others in the past few years – teaches us anything, it’s that a focus on the short-term is a crazy way to invest, as is trying to trade in and out of different companies all too frequently.
This month is ‘Dry July’, when many will give up alcohol for a month. Perhaps investors should take a leaf from that book by logging out of the brokerage account and committing to stay away until August!
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