4 April 2020
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Our screwy stock market is a money making opportunity!

Peter Switzer
17 January 2018

By Peter Switzer

Another day in paradise called Wall Street for US investors or local investors who have exposure to US stocks. And this contrasts with our screwy stock market.

However, this screwiness won’t last and I believe there is a money-making opportunity for the safe kind of investor who wants to take a little risk.

Before I show you how, let’s just do a little US versus Oz comparison.

In the US, the economy is on the way up, Trump’s tax cuts are on the way and the outlook is so good that we expect at least three interest rate rises this year. The stock market is in record territory and overnight the Dow Jones Index was up 268 points about 90 minutes before the close. This market index is up 5% since New Year’s Eve.

Back home, we’re growing slower than the USA but we look set to grow above 3%, if the Reserve Bank can be believed and the recent run of data has been better than expected.

Retail figures last week were the strongest in over four years and the consumer is definitely on the comeback trail, confidence-wise.

The weekly ANZ/Roy Morgan consumer confidence rating rose by 1.2% to 123.5 last week - the highest level in four years and well above the long-run monthly average of 112.9. The reading on personal finances is the second highest in nine years of records. Meanwhile, the monthly Westpac/Melbourne Institute survey of consumer sentiment rose by 1.8% in January – a 4-year high. The index now stands at 105.1 (long-term average 101.5). A reading above 100 denotes optimism.

The following stats possibly explain a lot of this, with job vacancies rising by 2.7% to a record 210,300 in the three months to November. Job vacancies are up 16.1% on a year ago – the strongest annual growth rate in seven years.

We get the latest job numbers today but the most recent one showed we’d grown jobs for 14 months in a row and had created 383,300 jobs in 12 months.

Hell, this is an economy that deserves a better stock market and I reckon we will see it over the course of the year.

Yesterday, our stock market fell based on softer iron ore prices linked to Chinese GDP numbers that could be weaker than previous forecasts.

This is pure speculation, where the market drivers could be right or they could be wrong. I suspect they’re crazy.

For the Switzer Report on Monday, which is for investors who subscribe to our special investment report, I speculated that the S&P/ASX 200 Index could beat its all-time high, recorded on November 2007 of 6828. But I also speculated that 7000 is a real possibility, given our improving economy and the likelihood that the Oz dollar will eventually retreat, which will help growth, profits and stock prices.

If I’m right in 2018, you could make 16% on investing in the index, and, if you add in say 4% for dividends, then by buying an ETF — exchange traded fund — for the best 200 stocks in Australia, you could make 20%!

I’m interested in this analysis because my listed ETF — the Switzer Dividend Growth Fund — basically tracks the index in question but we tend to have a bigger dividend because we chase dividends.

I’ve got an ETF for the Index and SWTZ in my core holdings because I’m not a thrill-seeking stock market player. I keep a little aside for more exciting plays to add a bit of alpha to my returns.

That said, 20% looks like alpha to me and when you get playing it with some of our best companies, it looks like a pretty smart play.

And at the very worst, if some black swan event comes along and stock markets fall, you’re still holding Australia’s best companies and the best dividend-payers on the stock market.

And it’s worth remembering when stock prices fall dramatically because people are panicking, dividends don't have to follow suit and can be quite resilient.

That’s good to know if you are a safe kind of long-term investor, who’s up for a bit of risk in search of alpha.

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