Today I’m going to show something that should give you some heart when it comes to Australia, and the ASX.
Let me explain…
My favourite quote when it comes to the markets comes via…a poker player.
Yep, Warren Buffett has many great one liners, but my all time fav belongs to (ex) poker champ Annie Duke.
I’ll show you why you should care below…
Annie describes how to win at a game of “incomplete” information.
In her case, Annie was talking about poker. But it applies just as well to markets.
The point? You can’t ever know all the facts. There are too many variables, hidden agendas and random influences.
How to cope with this kind of environment?
Annie Duke tells us too, “Reduce uncertainty to make future decisions easier for yourself.”
I love this!
Your money is important to you. The same is true of everyone.
Nobody wants to find themselves riddled with angst after making a decision that hasn’t worked out, or got themselves into a spot of bother…especially one that could’ve been avoided.
That reminds me. I remember chatting to a gent at a conference once. He’d been a successful dentist. Had a fair bit of cash to hand after selling his business.
Then it all went wrong. His financial advisor was – by the sounds of it – an idiot.
Our dentist got burnt in the bear market happening at the time.
Instead of enjoying the fruits of his years of work, he smoked too much money chasing supposed “outperformance”.
Nobody can predict the future.
The problem wasn’t that his investments went bad – that can happen anytime. It was that, clearly, he put too much money into speculation.
He didn’t make his future decisions easy for himself – by going too hard in the first place.
What’s that got to do with us, today?
Our biggest risk, at all times, is market risk.
What I mean by this is your whole portfolio – and mine – being vulnerable to a big bear market. Think a 50% drawdown like 2008.
There are no atheists in foxholes, and there are no sectors or stocks that can avoid that kind of carnage.
We can make our future decisions much easier…by avoiding a bear market as much as possible!
Easy to say, much harder to do.
I’ve made the case in these notes that we’re in a structural bull market, and have been since late 2023.
On the weekend I saw further evidence that this bull has further to run.
It came via the Australian Financial Review.
The report showed data that revealed Australians have more in savings than investments.
Check out the comparable around the world on this chart…
| |
| Source: AFR |
The article goes on to explain…
“Research by Vanguard found that Australia is one of only a handful of leading OECD countries where there is more money being held in savings accounts than in investments (excluding money invested in superannuation)…
“One of the factors driving Australia’s high savings rate has been the advent of offset accounts on mortgages. The percentage of household assets in savings includes money held in offset accounts.”
Let me explain the significance of this.
A big bull market, historically, can only peak when everybody – and I mean everybody – has thrown every last dollar of cash and borrowed money into the market.
That’s part of what sends markets to extremes, usually accompanied by a “get rich” mentality driving people to herd into the “sure thing” that seems to be happening around them.
What does the data above suggest, above all else?
It tells me that most people are still acting conservatively.
They’d rather have their money sitting in the offset or deposit account than chase the share market.
That says to me there is plenty of retail money that could still come back into the ASX.
I still don’t see much evidence of the wild speculation I saw in 2020.
This data backs up this observation. And suggests that the bull market can keep running while these timid souls slowly get sucked in as the market rises.
It also tells me there’s cash to hand to buy the next dip too – like we saw in April.
Of course, keep the opposing view in mind too. This caution could be justified from global events or a worried view of the future.
Overall, though, I take it to mean we’re not on the edge of a big bear market.
There’s still too much caution, or apathy, to signal a big market “top”.
I’ll keep accumulating shares until I see evidence otherwise.
Best Wishes,
Callum Newman,
Australian Small-Cap Investigator and Small-Cap Systems
***
Murray’s Chart of the Day –
Lithium
Source: Metal.com
[Click to open in a new window]
Lithium prices have spiked higher on Monday in China on the back of more regulatory disruption to supplies.
Reuters reported that ‘Contemporary Amperex Technology (CATL) has suspended production at its lithium mine Jianxiawo, in China’s Jiangxi province for at least three months’.
It’s mining permit expired on 9 August.
Chinese authorities have significantly increased scrutiny of mining operations as part of a nationwide effort to address environmental concerns, resource management, and industry consolidation.
Lithium stocks in Australia have flown higher this morning on the back of the news. Many lithium stocks have large short positions active, so my guess is there would be some short covering going on today.
News like this can lead to short-term moves that are subsequently reversed.
The supply/demand dynamics in lithium remain bearish and this news may help to ease the oversupplied situation for the moment. But it won’t lead to an undersupplied market.
Since this is based on Chinese government policy we should remain wary of becoming too caught up in the hype.
But after such a long drawn out bear market in lithium we are seeing positive signs that the worst may be behind us.
Regards,
Murray Dawes,
Retirement Trader and International Stock Trader
Comments