What was it I was saying about the stock market party?
Yesterday, the S&P/ASX 200 soared 1.2% higher after the iron ore price gained, Australian household wealth posted the biggest quarterly rise in four years, and the job market improved.
No wonder then the front page of the AFR today calls Australia the…
"Land of the rich"
Yes, Foolish readers. We're rich. And I'm not just talking about the billionaires like Gina Rinehart and her $20 billion and James Packer and his $7 billion.
You may remember the recent Boston Consulting Group report which found surging equity markets created 43,000 new millionaire households in Australia during 2013, with one in 50 households having more than $1 million in liquid wealth.
Surging equity markets. Remember them?
Cast your mind back a mere 12 months and you'll see the S&P/ASX 200 was trading at 4,800 and Commonwealth Bank of Australia (ASX: CBA) shares were trading at $68.
Remember now? Check your superannuation balance just to make sure.
No wonder Australia is teeming with millionaires.
By my calculations, based on the readership of this free Motley Fool Take Stock, there could be roughly 2,700 millionaire households reading this email right now.
Congratulations!
The stock market rally paused for breath on Wall Street overnight, the Dow dropping a totally insignificant 21 points.
Bloomberg reports it was the 49th straight day the S&P 500 failed to post a gain or loss exceeding 1%, the longest stretch since 1995.
No wonder then the VIX index, a measure of volatility, is trading at close at close to all-time lows.
And also no wonder that trading volumes here on the ASX have dipped significantly.
Investors are sitting on their hands, waiting for something to happen. Anything. Please. Up or down. Just give me a reason to trade.
As Michael McCarthy of CMC Markets said yesterday in the AFR…
"We're close to the post-GFC highs now and while there is clearly a pick-up in the underlying economy, investors are not feeling compelled to sell. They're not under any compulsion to buy either, so we've seen a pull-back in trading volumes."
What exactly are you waiting for, then?
Interest rates to rise? Good luck with that one.
Surely you're not going to make that age old mistake of waiting until the market is riding high — when it's trading back at 6,000 — before piling back into stocks?
And don't tell me you're waiting for the next market crash before jumping back into the market.
A fat lot of good it has done you so far — you've been waiting for the next crash for five years now, a period when markets have soared higher and higher.
Worse, in the same period, the only thing to have crashed is interest rates, decimating the returns on your "safe" term deposits.
I'm no saint, either.
Like many of you, I have too much of my wealth sitting in cash. It's safe. It's liquid. It even pays interest, albeit not much.
But compared to the returns of offer from shares, especially dividend paying stocks, it is a poor substitute.
Don't get me wrong. I love the optionality and flexibility of cash.
If there is a serious market crash, or even a plain old vanilla market correction, I can move quickly and decisively, picking up some bargains when they are temporarily on sale.
As an investor, you won't get every decision right.
For example, I know I'll sometimes buy shares just in advance of market correction.
I know I won't put enough money to work when the market is going through one of its period swoons.
I know I'll make some bad investment decisions — like the howler I made buying Lynas Corp (ASX: LYC) at $1, thinking the upside potential outweighed the downside risk. Today, Lynas shares are trading at just 13 cents.
Talk about lighting money on fire — I won't be getting those thousands of dollars back, ever. From here, Lynas' stock would have to gain 769% for me just to get back to break-even. It isn't going to happen.
Luckily for Motley Fool Share Advisor members, I leave the stock picking for that service to Scott Phillips. He wouldn't touch Lynas with my money, let alone put our thousands of subscribers at risk of losing 87% of their money on a high risk punt. You're in good hands with Scott and Andrew Page.
Speaking of a high-risk punt, in this space, just a couple of weeks ago, I wrote about how micro-cap stock Reverse Corp (ASX: REF) was looking interesting, given the stock had fallen as low as 10 cents, possibly on the back of EOFY tax selling.
After yet another profit upgrade, Reverse Corp shares now trade at 15 cents. In the space of just a few days, canny investors could have been sitting on a profit of 50%.
I missed it… a combination of being too greedy, indecisive, risk-averse, and The Motley Fool's strict trading rules, where I can't buy a stock until at least two days after I've written about it.
Ah well. Life goes on. There are plenty more Hidden Gems in the sea.
And you never know… Reverse Corp might drop back down a few cents again in the weeks ahead. It's (still) on my watchlist.
In the investing business, as ever, patience is a virtue.
