Paul's Insights: An Optimist's Guide to Investing

It is really interesting to see the US Dow Jones at over 20000.

 

March 2017

I was on Wall St when it hit 5000 in late 1995 and 10000 in late 1999. I was not there when it reached 14000 in October 2007 but, like all of us, I watched with concern as it fell to the mid-6000 range by early 2009.

Now I have no idea when and where the highs and lows of the market will be, but I know they will come and go. I also know we are at our most optimistic near the peaks and at our most pessimistic near the bottom of market falls. For those of you who hear, see or read my views, you know I am an ingrained optimist. This, actually, is not quite as dopey as you may think. Sure, I don’t sell out near the peaks (because I’ll get it wrong pretty much every time), but I do buy in the lows, very simply because I am an optimist. As I gaze over many thousands of years of human history it is not too hard to see that overall, life has improved dramatically for the vast majority. I take this experience and add in a bit of school-kid economics: aggregate demand. This is taught in early high school and goes along the lines of growing demand is good for economies. This is not too hard to understand. The reality is we humans are little economic miracles as we wander around buying things and spending money.

So the more of us there are, the richer we are, and the longer we live, the more demand we have for goods and services. Take the debate about capital city housing prices, in particular in Sydney. Yes, at some stage, such as in 1989/90, we’ll get a downturn in property prices. But Sydney’s population is predicted to double in about 30 years to 8.1 million people. It is currently growing at around 100,000 people a year. With more demand from a rapidly growing and longer living population, in the long run how do property prices drop and stay down? Good luck with that.

And it is the same with shares, hence my earlier comments on the Dow Jones. I deliberately used the Dow Jones, not our own All Ordinaries index, as while I am very happy for us all to own Aussie shares, the weakness in most of our portfolios is the other 98% of world markets. With local shares, I am happy to hold a bunch of well-known names myself. For small caps I use an exchange-traded funds manager and, in particular with international stocks, I do not dabble around trying to pick up stocks in various countries where I am not a resident and have zero competitive advantage. At InvestSMART we give you the tools and knowledge to better manage your money, but if like me you’d rather play golf than sweat over stock research (each to their own, I know some of you love doing this!), do take a look at the Intelligent Investor and InvestSMART portfolios.

They are a good way to invest in a low cost, very transparent way…. especially when it comes to international investments.

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