G'day Foolish readers,
I would recommend to investors to really buckle up and fasten seat belts. This is going to be a volatile year, laden with uncertainty and pronounced fluctuations and volatility… it is going to be a difficult year ahead.
Happy new year. Welcome to 2015.
The words above are not mine… they come from Axel Weber, UBS global chairman and former central banker, as quoted in the AFR.
The bears are out of hibernation. Forget that the ASX was actually off to a good start in 2015 — the plunging oil price, with seemingly no end in sight, has got the bulls rattled and the bears growling.
All of which suits me perfectly fine — as you'll read below, I'm still buying shares, still hunting for companies paying juicy fully franked dividends, and still upbeat about the long-term wealth creation opportunities of investing in the share market.
Yes, today, my portfolio is suffering, particularly the energy-related stocks. My Canadian-quoted oil junior, once one of my larger holdings, lost another 9% overnight.
9%. In a day. Again.
I'm so punch-drunk from its 75% plunge from its recent high that I'm now totally immune to the pain.
Which is a good thing, given pain makes investors do irrational things, like sell right at the bottom of the market.
Still, it could be worse. Sure, I've torched a few thousand dollars on my ill-conceived Canadian Experiment, which may or may not be recovered, but it's nothing on the $5 billion "blown" by some of Australia's richest.
As reported in The Age, the likes of Fortescue Metals Group Limited's (ASX: FMG) Andrew Forrest and Crown Resorts Ltd's (ASX: CWN) James Packer have seen their wealth plunge by a collective $5 billion over the past 12 months.
Source: The Age
Saying they "blew $5 billion" makes for a great headline, especially if they'd spent their money on fast cars, fast women, and cases of Bollinger champagne.
The real story is rather boring. Simply put, as in any 12 month period, their wealth fluctuated in line with the share price of the company the vast majority of their wealth is associated with.
Some years they "win," and their wealth increases. Other years they lose, like some did in 2014. Over the long-term, the likes of Stokes, Forrest and Packer have made vast fortunes out of the stock market. They are the winners.
They're not alone, either. My parents turned very modest investments into small fortunes by buying, holding and reinvesting the dividends into ordinary, everyday companies like Commonwealth Bank of Australia (ASX: CBA),Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES), the latter via the takeover of Coles.
Buying the right company at the right price is important.
Regularly adding more money to your investments — the beauty of dividend reinvestment plans is that it makes the decision automatic — is vital.
The holding for the long-term is absolutely critical.
You simply can't get rich jumping in to and out of the market, either day trading, or trying to time the ups and downs of the market.
It's time IN the market that matters, not timing the market.
As we sit today, the global economy has some challenges.
It had similar challenges last week, last month, last year. The names may change — iron ore, coal, the dollar, interest rates, bonds, gold, China — but the game remains the same. Buy, invest regularly, and hold.
Simple, really.
The reason why Andrew Forrest could "blow" $2.5 billion in the last 12 months is because he made so much bleeding money in the first place.
The reason why James Packer is a billionaire is because he didn't blow his inheritance on silly acquisitions, but he invested it in the casino business, one of the world's great money-making inventions (for the casino owners, not the gamblers.)
As an aside, although very much related, at Motley Fool Share Advisor — the subscription-only stock picking service run by myself and Scott Phillips, we rate Crown Resorts as a buy.
Put simply, we figure the casino business will be around for quite some time, earning money off gullible and willing punters for years to come, paying out a nice dividend along the way.
That said, even though Crown shares are attractive at today's price, the company didn't make it into the Motley Fool Share Advisor Top 3 ASX Best Buys Now stocks. Put simply, we were spoilt for choice.
Overnight the Dow lost close to 100 points.
In the "olden days," when the Dow was trading closer to 10,000, a one hundred point fall was relatively significant. These days, with the Dow close to 18,000, losing one hundred points here and there is all in a day's work for the stock market.
Still, the bears love it. The bulls go to pasture. The press feeds off it. Investors get nervous.
And so the cycle goes.
The old saying "the market climbs a wall of worry" could never be truer.
Feeding the frenzy are the genius investment bankers, now rushing to get their updated oil forecasts out the door — totally after the horse has bolted.
The latest was Goldman Sachs, predicting oil will trade at close to $US40 in three months, and cutting forecasts for the rest of this year.
At the rate the oil price is falling — down another 5% overnight, it's biggest one-day fall in 5 years — we could be there by the end of January. Watch this space…
Of course, energy stocks across the globe are getting hammered, with some justification.
Fairfax is reporting JP Morgan as saying Woodside Petroleum Limited (ASX: WPL) could slash its dividend, and by a degree that could totally shock most investors. They are not talking just a few cents sliced off the dividend.
Santos Ltd (ASX: STO) shares are off again today, despite the company pledging to retain its investment grade credit rating.
Santos are stuck between a rock and a hard place — the rock is the credit rating, the hard place is a dilutive equity raising. It's easy to say in hindsight, but the time to raise equity was when Santos shares were trading at $15, as they were just a few short months ago, not at the $7 they swap hands for today.
Such is life. You win some, and you lose some. Thankfully I'm not invested in Santos, or Woodside for that matter.
I am, however, invested in BHP Billiton Limited (ASX: BHP). Shares of the Big Australian are now trading below $28, putting me under-water on my most recent top-up.
If only I'd taken my own advice — that the time to buy was when there was truly blood in the streets, and that just as commodity prices and share prices can over-shoot on the upside, they can do the same on the downside.
Patience, dear Foolish investor, patience — I write this much more for myself than for you, our loyal readers. We can all learn, together, saving us all a few bucks in the process.
History is littered with investors who were in to a trade too early. Despite investing for more than 25 years, it appears I've made the same mistake, again.
Still, as mistakes go, the "in too early" mistake is on the mild side, especially when it comes to a blue-chip stock like BHP Billiton.
With BHP, unlike debt-ridden, single-commodity resource stocks, time is on my side, and courtesy of its juicy fully franked dividend — BHP's forward forecast dividend yield is now a whopping 5.3% — I get paid to wait.
I bet you didn't know THAT about BHP's dividend.
Here's another thing I bet you've forgotten about BHP's dividend…
Like Woodside, at these low oil prices, the BHP Billiton dividend could now be at risk, although I'm betting on CEO Andrew Mackenzie delivering on his promise to "to at least maintain or grow our progressive base dividend in every reporting period."
In which case, in comparison to term deposits paying a measly 3%, from an income generating perspective, give me BHP Billiton's 5%+ fully franked dividend yield any day.
Mackenzie's dividend pledge can be quickly forgotten when markets get nervous. It would be a massive backflip for BHP Billiton to cut its dividend, especially so early into the relatively new CEO's tenure, especially given his mantra of maximising value and shareholder returns. I'm a happy under-water holder of BHP Billiton shares.
As for the oil price, at these levels, and certainly at Goldman Sachs' $US40 a barrel prediction, it is simply a matter of time before supply and demand are back in sync.
The unknown is how long it will take. History suggests longer than many assume.
History also suggests this is not the bottom for beleaguered oil producers — just ask those investors who tried to pick the bottom of iron ore miners like Atlas Iron Limited (ASX: AGO) and Mount Gibson Iron Limited (ASX: MGX).
I'm putting oil stocks on a watch and act basis. Watch them fall, and act if and when oil does fall to $US40 a barrel.
Again, I'll likely be too early, and I would never go all-in even if oil fell below $US40, but at that level, with time on my side, I reckon I'll be able to snap up a bargain or two.
Speaking of bargains, I'm hoping this little market wobble ends up dragging the share prices of some of my favourite non-resource sector stocks down with it.
You see, for all the oil price machinations, two things remain the same…
1) Low interest rates are here to stay, more so now with lower petrol prices putting the lid on any signs of inflation.
2) By comparison to term deposits, fully franked dividends still remain very attractive.
Unlike oil, I'm not watching. I'm acting. Now.
I made one investing resolution for 2015 — to add to the holdings in my favourite companies, even if they were trading at a higher price than my original purchase.
Resolutions are made for breaking, so as to avoid this one falling to a similar fate as that of "eat less food" and "join a gym," I quickly jumped out of the blocks, committing to add new money to my favourite ASX small-cap growth stock, despite already being up 50% on my initial purchase price.
Brave, huh?
Two things combined in my favour…
1) The company in question was offering a Share Purchase Plan (SPP), whereby I could add to my holdings at a slight discount to the prevailing share price. Who doesn't like a discount?
2) It was my bonus pick for our "Shares 2015: The Investor's Guide to the Year Ahead" special premium report. Available for free when you sign up to Motley Fool Share Advisor the report names our investing expert's top four ASX picks for 2015 and beyond. If it was good enough for me to name the stock in the report, it was more than good enough for me to put even more of my own money behind the stock.
Giddy up.
Until next time, as ever, I wish you happy and profitable investing.
