Stick to your strategy
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- By Ken Howard
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- 10 March 2020, 8:30 AM
Despite 20 years of experience, my emotions are still on the share market roller-coaster. When prices are high and rising, I am confident and want to BUY, when prices are low and falling, I feel pain and regret, and want to SELL.
These emotions are normal, they are our survival instincts, to run with the crowd and be accepted by the community. You know you don’t know the future, so you hope that the crowd does. But experience has also taught me, that no-one knows the future, not even the crowd.
The good news though, is when investing in the share-market you don’t need to know the future and certainly not with any precision. Sure, if you could, it would be like a magic pot of gold, but you can’t. What’s important is that you have a plan, a strategy and some key principles.
You need to be able to identify quality and what’s "real" as opposed to a mirage. You don’t need to know whether a share price will be up or down tomorrow.
It is true that past performance is no guarantee of future performance, but it is all you have, and when you consider the dividend history for the ASX200 (over the last 27yrs) it is probably reasonable to conclude that the dividends and franking credits will continue, at or around 2019 levels, in 2020.
What’s also interesting to note, is that in 20 of those 27 years, the market fell by at least 10% during the year, a bit like the volatility of last week. But despite this, the value of the portfolio has increased from $400,000 to $1.7 million, and that is assuming, all of the dividends and franking credits were spent (nothing was saved or reinvested).
The coronavirus is obviously serious. As at the 3rd of March, the World Health Organisation had recorded over 90,000 cases, of which; some 48,000 have recovered, some 32,000 are currently assessed as mild, some 7,000 are deemed critical and over 3,000 have died. The mortality rate has been highest amongst the elderly and those with pre-existing conditions such as; cardiovascular disease, diabetes, chronic respiratory disease, hypertension and cancer.
I would note that the World Health Organisation is not currently recommending (as at 29/2/2020) travel or trade restrictions. Their recommendations for international travellers are; "personal hygiene, cough etiquette and keeping a distance of at least one meter from persons showing symptoms". They also note that “there is no evidence that wearing a mask – of any type – protects a non-sick person”.
That being said, quarantine measures do have the effect of slowing down the spread of the disease and can allow countries the time to prepare and mobilise resources. The coronavirus is now in 76 countries, most of whom have “imported” the disease, that is citizens have returned home, often under government programs, as opposed to the disease “spreading” to the country.
It is also worth noting that the world does regularly deal with virus outbreaks. So far in the USA(1), during the 2019-20 flu season, over 18,000 American’s have died. In Australia, during the 2019 flu season (the flu season is typically over the Winter months) there were 812 influenza-associated deaths reported to the NNDSS(2).
The travel restrictions, particularly within China, are having a real economic impact, and the longer they persist the more material the impact will be. But I am guessing, the travel restrictions will soon be lifted, and indeed there have been several reports of the Chinese Government encouraging large parts of the country to return to normal life.
What I am actually expecting, is that following the negative impacts, there is a very real possibility of a sharp recovery in activity; (a) there will be pent up demand, (b) the supply chain and inventory levels will need to be restocked and (c) there is very likely to be, additional support from governments and central banks. So strong demand plus stimulus.
It’s not great news, that a new virus has emerged, but given time, I would like to believe that medicine will find a way to curtail the impacts and limit further outbreaks.
As for the share market, volatility is only real if you need to buy or sell, otherwise stick to the strategy of buying good quality companies, with a demonstrated track record of profits and a conservative balance sheet.
I know I was enjoying the 10% rally in January and I haven’t enjoyed the 10% rout in February, but the rest of the year is still a mystery and I am sure there will be plenty of opportunity.
If you have any questions about your portfolio or your financial plan, please do not hesitate to call (07) 3334 4856.
- https://www.cdc.gov/flu/about/burden/preliminary-in-season-estimates.htm as at 4/3/20, estimate for the period 1/10/19 to 22/2/20; illness 32 to 45 million, 14 to 21 million medical visits, 310,000 to 560,000 hospitalisations and 18,000 to 46,000 deaths.
- https://www1.health.gov.au/internet/main/publishing.nsf/Content/cda-surveil-ozflu-flucurr.htm#current Australian influenza surveillance report No12, 2019, page 8, NNDSS – National Notifiable Diseases Surveillance System.
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Ken Howard is a Private Client Adviser at Morgans. Ken's passion is in supporting and educating clients so they can attain and sustain financial independence.
If you would like to learn more about assessing your finances, you can contact your closest Morgans branch.
General Advice warning: This article is made without consideration of any specific client’s investment objectives, financial situation or needs. It is recommended that any persons who wish to act upon this report consult with their investment adviser before doing so. Morgans does not accept any liability for the results of any actions taken or not taken on the basis of information in this report, or for any negligent misstatements, errors or omissions.