the

Where Is The Stock Market Heading Now? - UP or DOWN

[Music]

so where's the market heading right now

big sell-off in the u.s and also here

late last week

just as i've rebalanced my portfolio

markets down again after the open today

for a cumulative loss since the close

on september 3 of around 4

before it decided to turn around and

after being down 7 000

on the day my portfolio is now showing a

gain of one thousand dollars

a free cup of chebo for everyone who can

prove

that they predicted this sort of market

behaviour

at the start of last week a free cup of

chibo also for everyone

who can prove that they predicted in

september of last year

that a virus would wreak havoc on the

world economy

forecast in the future is of course a

very dubious art form

with many participants being more wrong

than being right

including analysts or anybody else for

that matter

trying to forecast the future

performance of individual stocks

there is an argument that she should

just always be invested

and waiting for a pullback or a time

when the market is supposedly not

overvalued

is a pointless exercise some would argue

that the schiller pe ratio

and individual company pe ratios suggest

that the market is currently overvalued

and now is the time to be very prudent

in making decisions about your

investments

of course p e ratios may in fact

be meaningless around the time of the

gfc

i could have got a three-year return of

eight percent per annum

from westpac for a term deposit that's

implying a p

e ratio for that investment of 12.5

last thursday i helped my mum secure the

awesome rate of

0.92 for 7 months

that's implying a p e ratio of 108.7

so perhaps csl on a p e ratio of 41.5

doesn't seem all that expensive after

all

now i'm not going to debate anyone on

the point of stocks possibly being too

expensive

but rather just alert you to the

historical performance of the australian

all ordinaries index

to give some context so let's head to

the desktop

for a historical perspective and

speaking of forecasting the future

let's have a look at the last 120 years

of the all ordinaries index now this

data comes courtesy of market

index.com.au

and across the 120 years since 1900

the all ordinaries including dividends

has returned an average of 13.2 percent

per annum

not so good as that necessarily over the

last period

but i want to refer in particular to the

10 years from 1975

through to the end of 1984.

across that 10-year period the market

returned an

average annual growth of 20 percent or

just a bit over

now you could be excused for thinking

that that couldn't keep going forever

particularly considering the fact that

1984

the market showed a tendency to give

negative returns

but had you formed that opinion saying

well the market is overvalued you just

can't keep going up

at twenty percent per year year after

year after year and you withdrew your

money

waiting for the market to pull back

clearly in 1985 and 1986

you missed the opportunity of another

100

growth in your portfolio now you may

have made the decision eventually to

figure that you might be wrong and get

back in

i just make the point that forecasting

the future based

on growth rates and saying right well

right now it has to turn down

is not necessarily going to be the case

if we look here at the biggest negative

returns

i've highlighted them in the red

rectangles we've got the

1930 won't call it a downturn it was

supposedly a depression

but even though many many people lost

their jobs and times were very very

difficult the stock market itself

only fell by 28 percent and

including 1929 in the lead up to that

3.6 down compare that for example with

what happened in 2008 the gfc

where the market went down 40 percent

or we look back at the two years across

1973 and 1974

where the market across those two years

fell by

around 50 percent now i've highlighted

these particular

regions for two reasons first of all

because they are the largest ones

but apart from this period here in 1915

and 1916

there have only been one two

three four periods where the stock

market has delivered

negative returns for two years in a row

so 1929 1930 down by what around about

33 34

in the early 50s down across two years

consecutively by around about 15

in the mid 70s down by around 50 in the

early 80s

down by in excess of 25

so one two three only four periods and

we really won't count that one because

there's virtually nothing happening

there

so only four times out of 120 years

have we had two successive years

where the all ordinaries has delivered

negative returns

one year after another so

looking in recent times if we take a

one-year period

going backwards from where the market as

measured by the 300 index

hit its lowest point of around 58

dollars

going up a year before that it was

trading at around

eighty dollars so that's a fall there of

27 percent

currently we are now trading in here

just to stick above

75 dollars

if we add in there for the last year to

get an idea of what's happened in the

last year going backwards from today

it's fallen from tick over 84

down now to around 75 and a bit

and if we look at what's happened in

this calendar year it's fallen from

around 85 50 down to

or it's tick over 75 so

across all of these periods basically

going back to

march of 2019 we are looking at periods

of negative returns for the market

so history would be saying that the

chances of the next 12 months starting

from here

also being negative are rather slim

and that's if history repeats itself

looking overall at the market and again

this

uh is courtesy of market index.com.iu

you can see that across that 120 years

80 percent of the time or 81

of the time the market has delivered

positive returns

and only 19 of the time has the market

delivered negative returns

the gsc sits out here all on its own

quite a way away from the rest of the

chart

1929 and 1930 being the

depression and i highlight

here in purple what happened after the

depression

and you can see that in 1931 the market

delivered

between 10 and 20 and then the following

two years

between 20 and 30 for both 1932

and also for 1933. people

who just hung on and were able to hold

their nerve

rather than sell out and then try to

time their way back in

were probably pleased with their

decision once they finally got to the

end of 1933

well will history repeat itself we

aren't going to know are we

we're all just dealing here with

probabilities and as those statistics

just showed

there is an 80 probability that

we will have an up year starting from

here

but of course that's if history repeats

itself

so to answer the question where is the

market heading from here

well i have no idea but history would

suggest that there is an

80 chance that it will go up and only a

20

chance that it will go down i have no

idea whether my rebalance portfolio will

perform better than the one that i had a

week ago

but i do have faith in historical

statistics

being repeated in the future i also have

faith in the statistics that show that

high

quality growth companies will outperform

the overall market in the long term

whether my investments will produce that

result is of course

unknown but for your own individual

enlightenment i'll continue to update

you with the progress of my portfolio

and alert you to any new statistical

evidence that might help us find

superior returns in our investments

since the close of trade on september 1

when i had completed the rebalance

through to the time of recording today

near the end of trading

the portfolio was down 1.7

compared with the asx 300 index being

down about

0.3 looks like my portfolio needs to

lift its game

but that's one week in a very long game

thanks for watching and keep well until

i catch up with you again

very soon