Look out above…
Yesterday saw the S&P/ASX 200 Index roar over 100 points higher, closing at 5577, its second biggest jump of the year.
The AFR called it a "stunning $30b relief rally."
The same publication quoted Morgans private client adviser Alistair McCorquodale as saying…
"I can see no reason then why it (the market) wouldn't head straight back up (to 6000) from here."
Who am I to argue?
In morning trade, the ASX is up another 40 points, breaking through 5600. After a brief hiatus, the bull market is back.
The Greece situation is currently stable. Chinese stocks have steadied. And the last time I looked, the RBA cash rate was still 2%, and interest rates on term deposits were still pitifully low.
By comparison, the share market remains the only game in town.
Where else can you earn tax effective income — in the form of fully franked dividends — of 5% or more?
Sure, you have to take on extra risk. The value of shares can go down as well as up.
Sure, you have to be able to deal with share market volatility. The value of shares go up and down on a daily basis.
But in return, you are well compensated.
A diversified share portfolio, made up of quality companies, bought over time, held for the long-term, through thick and thin, is highly likely to out-perform every other asset class, including cash, property (yes, really) and (heaven forbid) gold.
What are you waiting for?
Then again, for some, this whole investing lark is not as easy as it looks.
It's definitely not easy if you can't control your emotions. If you can't handle share market volatility. If you can't handle losses. If you can't take a long-term perspective.
Note nothing in the above paragraph says anything about stock picking. Yes, it's important. Very important. But in the hierarchy of investor needs, you need to master your emotions way before you master stock selection.
Since you have read this far, I'm going to make the bold assumption share market volatility doesn't scare you.
Tell me you weren't fazed by the whole Greece thing, which saw the ASX fall from 5900 to 5400.
Tell me that rather than selling as markets fell, you bought shares at the cheaper prices on offer.
Tell me you're NOT going to wait until the ASX hits 6000 before adding new money to the market.
If that's you, the investing world is your oyster.
I've been away. On holiday. But I didn't switch off from the share market.
As well as my work, investing is my hobby. As an added bonus, it's the world's greatest wealth creation vehicle.
A few hours downtime in Rio de Janeiro (you can only walk down Copacabana Beach so many times) gave me the opportunity to do some portfolio maintenance.
Out went some of my lower conviction holdings. Companies that have limited upside potential given their modest growth prospects.
(Woolworths Limited (ASX: WOW) survived the cut this time, but it's definitely on notice.)
In came global dominators. Companies with sustainable competitive advantages. Growth companies, with multiple ways to win.
Legendary US fund manager Peter Lynch made a fortune for investors buying companies he used in everyday life. His catchphrase — "buy what you know."
On our holiday, I knew I was posting pictures to Facebook, and so was EVERYONE else. It's as dominant a platform as you can ever imagine.
I knew I was using Google, and would use its products for the rest of my life.
I knew I was using Booking.com, owned by Priceline. The customer experience was stunning.
I knew I was using TripAdvisor. I couldn't visit a restaurant without it.
I knew I was using Visa and MasterCard, every day. Cash is their only competitor.
All bar Facebook were added to my portfolio (I already own a decent chunk of Facebook).
Yes, all were expensive.
Yes, their valuations are stretched, and arguably most are priced to perfection.
But yes, yes, yes… all should be wonderful companies to hold, and to add to, for decades to come.
The only thing missing is dividends.
Never fear… the ASX is here. Dividend yields of 5% are commonplace. Add in franking credits, and a 5% yield grosses up to over 7%. Kills term deposits.
Better is a forecast fully franked divided yield of 7%, which grosses up to over 10%.
Better still is when that dividend yield comes attached to a growth company that's trading at a dirt cheap price… just like the one Andrew Page — our resident dividend expert — has discovered.
I can't tell you the name of the company — you'll have to click here to find out — but I do intend buying some myself… when The Motley Fool's strict trading rules allow.
Such opportunities don't come around often.
But when they do, you should take advantage of the market's volatility, and grab yourself a bargain… well in advance of the ASX hitting 6000. At the rate things are going, we could be there sooner rather than later.
