Friday, 15 January 2021
By James Woodburn
[3 min read]
‘I have a feeling 2021 is going to be an even bigger year.
‘I get the sense we are building to something of a magnitude that will take people by surprise. There is just way too much optimism…IPOs, cryptos, real estate, market indices going higher.
‘When everyone is thinking the same, life has a way of surprising us.’
That was how Vern Gowdie ended his final email to me just before the break.
Will Vern be right? I guess we’ll find out.
But one thing you won’t find here is our editors thinking the same.
It was in that vein we started 2021 in earnest this week…
The Aussie market again peeked above its November 2007 high point.
There are a number of ways to view this. A 13-year bull run, or flat in that time.
Depends when you get in, I guess…and what your time horizon is.
But here’s how Vern views it…
‘The All Ords has once again (ever so barely) stuck its head above the 1 November 2007 peak of 6,873 points…a period of 13-plus years to reach break even.
‘Shares for the long term? Maybe. Maybe not.
Source: Yahoo Finance
‘If you went into the Aussie market on the back of the hype in 2007, it’s been a looooong time from peak to peak.
‘Investors took the elevator ride down in 2008/09, wiping out all gains made since 2003.
‘Then it’s been a staircase climb back to break even.’
Vern compared the Aussie market with the US. It’s been a different tune over there. Not so much a stair-climb than an elevator ride (we love his analogies!).
He made a keen observation though…
When the US market rides up higher the Aussie market is slow to follow. But when the US market plunged in February/March 2020, the All Ords tethered to Wall Street, fell almost an identical amount.
As Vern put it: ‘Our market doesn’t get the gain, but sure does get the pain.’
But like I said, there’s another way to view this. And a day later, Greg respectfully disagreed…
‘…unless you’re a trend-following index investor, you’re not investing in a stock market. You’re investing in a market of stocks. While the “market” might appear overvalued, that doesn’t mean every stock is too.
‘And you don’t have to be all in either.
‘You can buy assets that act as a hedge against stock market volatility, like the US dollar, bonds and gold. If the market corrects/crashes at some point this year, these assets should do relatively well.
‘And then there are individual stock picks that give you the ability to take less risk than buying “the market”.
One example he showed of this was the concentration of just a few tech stocks that make up the vast majority of the S&P 500. 22% of the total index capitalisation is down to a handful of stocks (Apple, Facebook, Amazon, Google…). The bottom 250 component makes up just 10%.
He pulled up a chart from a Seeking Alpha article, which also showed the S&P 500 is ‘approaching record concentration’.
Source: Advisor Perspectives/Seeking Alpha
This means that those buying the S&P 500 thinking they are diversified are dangerously mistaken.
‘It’s anything but’, says Greg. ‘The S&P 500 is hugely concentrated in the world’s largest tech companies. Which is fine when everyone wants a piece of tech. But when the tide inevitably goes out, what then?’
‘My point is that you can choose not to expose yourself to this risk. You can avoid S&P 500 and expensive tech stocks and look at alternatives.
‘Like…the Aussie market!’
So, let’s talk about the opportunities on the Aussie market in 2021.
For this, I brought in Murray Dawes for my first Insider conversation of the year.
If anyone knows how to find individual stock opportunities, it’s Muzz.
You can see his current portfolio of trades below…
Source: Pivot Trader
As you can see, they are impressive. (I’ve purposely blacked out the names of the companies out of respect for his paying subscribers.)
It’s also why I want to make learning about Murray’s trading approach as accessible as possible for all our readers looking for trading ideas, solutions or an expert guiding hand to help them.
For that, we’re kicking off 2021 with our first trading event ‘Magnetic Trading’.
You can find details of that below.
But first check out our conversation. We started by talking about what the ‘blue wave’ in the US political scene will mean for markets.
Biden has made no secret about his intention to try and stimulate the economy with more money printing and borrowing. That money is going to go somewhere. And Murray has an idea about where it’s likely to go.
Australia could be a beneficiary…and many trading opportunities are a’comin’ out of it.
Either click here, or on the play button in the screenshot below:
And then get your name down for Murray’s ‘Magnetic Trading’ series, right here.
Have a great weekend!