What to do?
I noted Alan Kohler's comments in his Saturday report: "The point is that there is the clear and present danger of a cluster of sovereign and bank defaults in the months ahead. If that occurred, sharemarkets would fall significantly from where they are now. We all hope it doesn't happen, but please, please don't bet your retirement and your wealth on that hope. Prepare for the worst, while hoping for the best." I am in complete agreement, but I am wondering what is the best strategy? I have been following Eureka Report's suggestions and looking to improve dividends as well as moving to quality (as defined by Roger Montgomery). But is this enough?
– P Watson
Editor’s response: A diversified portfolio is generally the safest bet, especially when there’s no end in sight to this market volatility. However, investors do have to be more careful about their stock choices than back in the 2000s and why they are investing in them: is it for income, growth or capital protection? This is a stock picker’s market but there are good, quality companies out there operating in a range of industries and it is possible to create a relatively safe, diversified portfolio with these.
BHP Billiton’s dual pricing
I am intrigued as to why the BHP share price in London is discounted against the Australian price. Is there some reason?
– J Power
Editor’s response: In theory this shouldn’t happen and no one really knows why it is. But there are a variety of possible causes: usually dual-listed companies trade at a premium in their home market, where there is a larger mass of shareholders, which provides more liquidity and gives the stock a greater weighting on the indices. However, you must also take into account the different moods and contexts in which the markets operate; relative currency movements and future expectations; the fact that in Australia the shares carry franking credits but don’t in the UK; and differences in the compulsory superannuation systems in each country.
Our childlike view '¦
Alan, your tone is sombre, and logic convincing. Thank you for your and your team's contribution to the thinking of superannuants like me. I have a personal snippet: in the car last weekend, I asked my 6 and 4 year old granddaughters: How do Mum and Dad get money? "From the bank." They had no idea that you had to put it in before you took it out. They also said: "You go to the shop to buy things and the lady gives you money," – Mum hands over a piece of paper and gets back both goods and precious coins (they see coins as real money). We laughed about this, but on reflection their view parallels that of much the Western citizenry towards national economics, particularly in the US. In time the girls will grow up and know better. I always assumed that the citizenry would do the same. But our democratic system, with the disconnect between demand (us) and responsibility (the pollies), encourages childish expectations, and it's not happening.
– M Weetch
- To read this week’s letters, click here.