What a month…
Just when you thought October would finally bring the long overdue stock market correction, the S&P/ASX 200 Index goes ahead and jumps 4.4%, closing last week above 5,500.
It was exactly a week ago when I suggested the benchmark index could breach that mark this week.
Doesn't take much, huh? A bit of confidence, a bit of momentum, the odd takeover proposal, excellent corporate earnings from US companies — powering those markets to new all-time highs — and we're off to the races again.
In case you missed it, interest rates are still low, across the globe. By comparison, investing in stocks, particularly of the dividend-paying variety, are attractive
Let me summarise…
Interest rates — 2.5%.
Fully franked dividend yields — 5% and above.
That sort of equation will generally do it for you…
It did it for you three weeks ago, too, even when the S&P/ASX 200 Index was hurtling towards a correction, bottoming at 5,122 on October 13th, 2014.
It just didn't feel like it at the time.
Since then, precisely three weeks ago, the benchmark index is up 7.8%. It has been one hell of a rally.
Next stop? ASX 5,800? That's only 5.5% away from here. Based on the fierce rally over the past few weeks, we could be there by Christmas…
Not that I'm making any predictions, mind you… apart from sticking to my overall tip that local interest rates will stay lower for longer than most people think.
Speaking of which, tomorrow, while most of the nation are watching a horse race, Glenn Stevens and his merry band of bankers are almost certain to leave the cash rate unchanged at 2.5%.
If that doesn't excite you — and term deposit rates riding at 3% per annum don't see me bounding out of bed each morning — then you won't want to miss Lewy's top three Melbourne Cup tips for 2014.
Lewy is the Fool's horse racing pundit. Observant readers will have spotted his best bet of the day on Saturday's Derby Day meeting came home a winner, and long-time Motley Fool readers will remember him tipping Dunaden in 2011. After that success, we did briefly consider a new service — Fool Form — but quietly canned the venture in favour of getting rich slowly.
Lewy's Melbourne Cup tips are below. I'm splashing out on tomorrow's race, "investing" a total of $35 on the event.
Am I over-confident? Almost certainly. Am I blinded by the possibility of a big win, especially given one of Lewy's tips is 66-1? Totally. Will I lose all my money? Probably.
All will be revealed tomorrow afternoon. Giddy up.
If you thought horse racing was unpredictable, the same goes for these stock markets.
One day we're on the cusp of a correction, the next US markets are hitting all time highs and the ASX could be set to push even higher in the run-up to the end of this calendar year.
In the US, now the Federal Reserve has officially ended its money-printing program, it's all about the economy, and corporate earnings. And on this front, according to Bob Doll, equity strategist at Nuveen Asset Management, the news is good. Quoted on Bloomberg, he simply said…
"Stocks will continue to grind their way higher."
He could have added "just like they've done for decades before, and will do for decades in the future."
Unlike the Melbourne Cup, your investment in the stock market is not all over in a little over three minutes.
Stock market investment is about time in the market, not timing the market.
I know what you're thinking today, now the market has rallied off its recent lows…
"Have I missed the bottom?"
The short answer is no. Sure, it would have been nice to have ridden Liquified Natural Gas Limited (ASX: LNG) and even Qantas Airways Limited (ASX: QAN) 25% higher over the last two weeks, but that would be down to a LOT more good luck than good management.
My Melbourne Cup punting aside, I prefer to rely on the latter for my investing kicks. In a nutshell, it means buying great companies, at good prices, and holding for the long-term, allowing the miracle of compounding returns time to do its work.
All that without lifting a finger — you simply let the management of the companies you've invested in do all the hard work. Even better, your broker doesn't earn much either — after your initial buy, you don't have to pay them a further cent.
These have been a great three weeks to be an investor. Heck, here at the Motley Fool, subscribers to our premium stock picking services might have been dancing in the streets given the performance of some of our picks over that admittedly very short time-scale.
Still, we'll take it, especially when compared to "the other side" — a place where iron ore stocks like BC Iron Limited (ASX: BCI), gold stocks like Resolute Mining Limited (ASX: RSG), and even the big kahuna Woolworths Limited (ASX: WOW), have been taken to the woolshed, the latter off more than 4% today on lacklustre sales growth.
Using data from S&P Capital IQ, I ran a screen on the share price movement of the past three weeks of companies with a market capitalisation above $200m.
Imagine my shock to find six out of the top 14 gainers in the list, were stocks our Motley Fool premium services had tipped to our subscribers.
Out of respect to our paying members, I've blacked out the stocks we still rate as buy recommendations. The stocks in yellow we currently rate as a hold, each initially tipped to Motley Fool subscribers at much lower prices than those that prevail today.
Not bad, even if I do say so myself.
Stating the obvious, three weeks is neither here nor there in the life of a long-term investor. We're pleased, of course, but know our best work must come in the years ahead if we are to continue to please our thousands of loyal Motley Fool subscribers.
Before handing over to Lewy for his Cup tips, I'll leave you with a comment from the chief executive of ANZ Bank's Australian arm Phil Chronican, as quoted in The Sydney Morning Herald…
"I do worry that some people behave as if housing is always a one-way bet.
I think there is a bit of an irrational obsession with housing as an investment class. For many investors, they would be better off in assets other than housing."
The highlighting is mine. Yes, I'm an equity guy, not a property investor.
I've tried the latter, very briefly, and I could think of nothing worse than again becoming a DIY landlord — and that's before considering the pitifully low rental yields on offer from rental properties bought today.
As Mr Chronican is effectively saying, people buying investment properties at today's elevated prices are making a very risky bet. Not quite of Melbourne Cup proportions, but the risks are definitely to the downside.
And what are those "assets other than housing" he so refers?
My guess is he's NOT talking about Bitcoin, gold, Matthew Hayden's "The Great Australian Cask Offer" or even term deposits.
I reckon you can work it out for yourself…
