In my recent Ten Minutes with Tate video that looked at the bed-wetting that accompanied markets moving to new all-time highs, I reflected on the fact that markets always warn you when they are about to fall over and I touched on what a healthy market looks like. In addition to this, I have often noted the conundrum that is the local market. I contend that the local market is not an investment-grade market in the same sense as the US market due to our lack of size and depth. To perhaps push the point a little too far we don’t have dynamic world-class companies – there isn’t the environment for that sort of energetic investment in Australia. It is far easier to tie up the nation’s wealth in residential real estate instead of creating something. Our market is a speculators market – speculation can make you rich but you need to know how to do it and you need to learn how to create your own wealth as opposed to relying upon the somewhat dubious advice of others.
To give you an example of the problem with the local market I worked through the S&P/ASX20 to generate the table below. Remember, this index is made up of what are considered to be the “best” companies in the index. If anything were to be classed as investment grade it would be these.
The table looks at their all-time high, their current price, the difference between the all-time high and the current price, the time since they made a new all-time high and the current drawdown.
There are three stocks that are close to their all-time high. The remainder are to blunt rubbish with the pinnacle of wasted investment time being TLS which has not seen a new all-time high for 1,329 weeks – that is over 25 years since it made a new all-time high. NAB and QBE which seem to be on every advisor’s list of top investments have not seen new all-time highs for 872 weeks and 881 weeks respectively.
Undoubtedly in between making new all-time highs and now these stocks have displayed movement of sorts. But that is not the issue. The point is that as market leaders they should be driving the market not locked in limbo. The situation is not helped by the depth of drawdown that some of these stocks are in as shown below.
For those who bought these stocks at or near their all-time highs, the chances of seeing a return on investment in your lifetime are probably slim – the only thing that will save them is a bull market like we have not seen.
I think there is some practical advice to be taken from this.
- Buy and hold is a stupid idea. If you bought TLS at or near its high then you have been waiting for 25 years. For NAB it’s 16 years. You could console yourself that you get your dividend but on their dividends don’t make you wealthy.
- Outsized gains are not to be found in the majority of stocks that a financial planner or even a stockbroker would give you.
- Outsized gains come from lower-priced stocks – that are begin their runs outside of the major indices.
- If you wait for a stock to appear in a major indices then you have probably missed most of the run – stocks are only included in indices after they have run. So whist the likes of DEG and PLS are currently in the S&P/ASX200 they were not there when they began to run.
