Monday 13 October 2008

The market went up 5% - is it time to be fearful, greedy or complacent?

The Australian market was up 5% today, recovering a large part of last week's "Black Friday" plunge. That means the market is down "only" 40% from it's high last year, rather than 45%! Now, is it time to be fearful that this is just a temporary bounce and seize the opportunity to off-load some stocks and reduce my gearing? Or is it time to be greedy and assume we've seen the bottom of this particular bear market? As I'm fully invested in the stock market and already geared to the hilt, for me the "greedy" option is to be somewhat complacent and just maintain my current level of investment in stocks.

Today I'm inclined to be "greedy" (optimistic?) and stay invested in the market for the long haul (another 20+ years), however I may take this opportunity to sell off some of my individual stock holdings and reinvest the proceeds in an ETF such as Commonwealth Diversified Share Fund (CDF). Over the past 20 years I've decided my stock-picking ability is mediocre, so I may as well just invest in an Index Fund. Current prices provide an opportunity to sell out of individual stocks that I've owned for many years and offset the resulting capital gains with some losses realised by selling out of stocks I purchased more recently. This offers me the chance to simplify my stock portfolio without significant tax costs. A streamlined portfolio invested mostly in Index funds and ETFs will greatly simplify my annual tax returns in future years. I suppose every cloud has a silver lining.

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Anonymous said...

Its great to see the aussie market pull back, but I honestly think its just temporary. Until the world economy sorts itself out I cant see much improvement on the local scene.

Anonymous said...

This was a great post! There is so much turbulence in the market today, and people need peace of mind more than ever. I wanted to offer your readers a link to another blogger who is doing great work. He writes about our childhood money messages' and how the best approach to stability in today's market is to resist letting these emotions control our buying/selling habits. It is really fascinating work, and something you should all check out.
His name is Spencer Sherman, and you can view his blog at