Do I detect signs of life in the Australian stock market?
Against all expectations, the S&P/ASX 200 Index has jumped sharply higher, shrugging off the Dow's 100 point overnight fall.
Energy stocks are up, despite a further slide in Brent crude oil. Directors are buying, far out-numbering director selling.
Was yesterday the bottom of the market?
Source: The Age
Markets move in strange ways. I should know, given my 25 years of active investing experience. Just when you least expect it, when there's pessimism for as far as the eye can see, they rise.
And they keep rising… far beyond seemingly rational expectations.
It was only less than two weeks ago that Credit Suisse equity strategist Hasan Tevfik revealed he was sticking to his S&P/ASX 200 Index target of 6000 points in 2015.
The reason? According to The Age…
"For investors, the ultra-low yields on offer in fixed interest assets make equities a compelling choice because of the sharemarket's ability to deliver stable if not growing dividends."
While there has been lots of hand-ringing and very real and devastating losses incurred by investors in the beaten-down mining and energy sectors, good old fashioned dividend stocks have been forgotten.
Not for much longer, if the boffins at Credit Suisse are even close to being right. From here, with the S&P/ASX 200 Index trading below 5,200, the upside is more than 15%. That will more than make up for a rather dull 2014.
There are many mistakes investors make, not the least being that they extrapolate the recent past well into the future.
A classic case in point is this chart of oil price forecasts. As you can see, when trying to predict the future price of oil, the "experts" simply took the most recent price and extrapolated it off into the future.
No zigs. No zags. Straight line forecasting, based off today's prices.
Source: FT.com
Geniuses, hey?
The above chart should simply be renamed Wrong, wrong, wrong, wrong, wrong and wrong. The Wrong brothers.
Bringing it back to today's volatile stock markets, as investors look towards 2015, they assume the returns will mirror those of 2014.
They assume markets will be flat, to slightly down. They assume the oil price price will hover around today's price all through next year. Iron ore? $US60 a tonne for as far as the eye can see.
My tip for 2015? They will all be wrong.
Here's what they are forgetting…
That the most recent reporting season was characterised by ASX companies reporting steady growth and well above average hikes in their fully franked dividends.
That sharply lower petrol prices will greatly benefit the Australian economy.
That Glenn Stevens stands ready to deliver an interest rate cut, perhaps as soon as February 2015, a kick in the teeth to term deposit savers, but given the relative returns, a significant boost to dividend paying shares.
The plunging Aussie dollar is likely to keep falling, a major boost to the tourist, mining, travel and manufacturing sectors, and to the economy.
As for the toxic political environment, it surely can't get any worse, a significant boost to consumer confidence.
If you're after steady, reliable, no-risk investments, your best bet is term deposits.
As you'll already know, the sad truth is that the interest rates on offer from term deposits are already pitiful, and that's before any further potential interest rate cut.
No wonder Credit Suisse say, by comparison, dividend paying stocks are a compelling choice.
ASX 6,000 here we come?
I wouldn't count it out. Economically, the stage is being set. The missing piece of the puzzle is confidence — not only consumer confidence, but confidence in the future returns of the share market.
Pundits and investors alike have been quick to write-off the traditional Santa Rally, no doubt using the same "genius" formula as the oil forecasters depicted in the chart above.
In other words, investing by looking through the rear-vision mirror.
Unfortunately, such a strategy never works. It's why charting doesn't work — it looks backwards.
Have you ever subscribed to, or bought, very expensive charting software, costing thousands of dollars, only to find it simply doesn't pick the stock market winners of the future?
Expensive lesson, huh?
I know. In my 25 years of active investing, I've seen it all. I know what works, and what doesn't.
What does work is keeping things simple. It has worked for the past 25 years. It will work well in 2015, and beyond.
We call it Foolish Investing — buying good companies, paying solid fully franked dividends, and holding them for the long term.
Ignore regular stock market volatility. Invest through the cycle. Where possible, reinvest your dividends back into the stock market. Rise, repeat, retire rich.
Speaking of simplicity, the value proposition of our Motley Fool Dividend Investor premium stock-picking service couldn't be any clearer.
Andrew Page, our resident dividend expert, does all the work. He picks the ASX stocks, usually paying fully franked dividends, and subscribers to our Motley Fool Dividend Investor service choose whether to add them to their portfolio.
Couldn't be simpler… and all for $198 for a TWO year subscription, or 27 cents per day.
I'm not hanging around, getting in ahead of the game, ahead of any ASX surge towards 6,000, setting up my portfolio now for success in 2015 and beyond.
I'm busily deploying a chunk of cash I've had sitting on the sidelines into ASX shares, taking advantage of the lower share prices on offer today.
I'm especially interested in dividend-paying stocks NOW, for two reasons…
1) Many dividend paying stocks have been caught up in the energy-related sell off. I like nothing better than grabbing shares in beaten-down unloved stocks, the cheaper the better.
2) If S&P/ASX 200 Index were to jump to 6,000, my betting is it WON'T be the big four banks leading the charge. Take them out of the bull market equation, and that means my BHP Billiton Limited (ASX: BHP) shares will have to do some heavy lifting, along with a number of "second tier" ASX large cap stocks.
I still have high hopes for my BHP shares.
But it's in that latter group that I'm fishing now, starting with the stock I recently named my "One 'Millionaire Method' Stock to Own Today," a stock I name in a special report exclusively available only to Motley Fool Dividend Investor subscribers.
Be brave. Invest Foolishly. And sit back, and enjoy the dividends.
