It seems likely that this stockmarket rally will be the 2nd best in human history and the shortest lived if the market behaviour of the early 1930s is anything to go by. Back then the market was extremely volatile. The reason I suspect was the injection of liquidity into the credit market to shore up the banking sector. The reason for the 2nd collapse was likely the resulting inflation. Yes, thats right, the governments and central banks are facilitating another period of debt creation. The difference this time is that there will be less spending, less productive capacity, which meaning a lot more inflation to rebalance markets.
But enjoy the benefits while they last. History has shown that gold prices collapsed 50% in the 1970s before they rallied 800%. I will be watching to see if that happens as it will take a little time for cost-of-living inflation to take off as asset prices (i.e. asset inflation) take off again.
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Andrew Sheldon
www.sheldonthinks.com
Investment Strategy
If you are investing for the long term, you still need an investment strategy. Dont be fooled by the rhetoric of fund managers. The reason they advise you to 'buy & hold' is because they dont want to compete with you in sell-offs. Markets and industrial sectors are cyclical, so they demand trading to get the best returns. Fund managers actually cant hope to match the performance of small investors (if you are half good) because they have to manage huge amounts of funds and charge you a fee besides.
MY ADVICE is (i) look at a range of market indices and decide upon what level of correction would give you the justification you need to get in & out of the market. It might be a 5-10% retracement or a break of trend. (ii) Diversify if you dont have an intimate knowledge of the company or management. More than 30% in one company is aggressive.
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