Where is the stock market heading
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
