FYI | Nov 25 2015
By Peter Switzer, Switzer Super Report
It’s nice when you are proved right with this market-calling stuff and so I was especially happy to see OzForex spike 30% in a day, considering one of our experts, Tony Featherstone, had been pushing the company for quite some time as a buy. It is now being chased by Western Union, which clearly agrees with Tony.
I also like it when an employee delivers me a chart like the one below, which I will now share with you. Here it is:
Now I know this chart looks complicated but let me make it simple. The big blue line in the middle with the shading is the ASX 200 index, while the four lines above are four companies that have done better than the index since early August.
Subscribers have often asked me what they should buy when I say “buy the dips” so with five months to go before the end of the year, I wrote a piece for you titled, Five experts, five stocks, for five months. I put my stock picking mates on the spot and they came up with Resmed in red on the chart above, Eclipx in dark green, iSentia in brown, ARB Corp in light green and Redhill Education in purple, which is the only poor performer over the time so far. It’s in a space where a number of education businesses have been crushed because of some perceived dodgy practices, which could result in some government policy changes that could affect these business’ bottom lines.
Clearly, I hope it comes good before the five months are up and I hope the others keep on doing well but the lesson of being diversified and not being exposed to one stock has been borne out.
Of course, if you don’t want to punt on the vicissitudes of individual companies when you want to buy the dips, then you could easily buy an ASX 200 index ETF such as IOZ.
Let’s see what would have happened to you if you tried the above strategy using an ETF, such as IOZ, where you simply want to buy the index.
To work this out, you need to ask how many dips have there been in 2015?
Let’s use 200 points as a measure of what a dip looks like. Give or take a point, there’s a been about seven this year.
Let me list them roughly:
- Early January 5400 to 5200.
- Early May 6000 to 5600.
- June 5800 to 5420.
- July 5700 to 5400.
- August 5600 to 5000.
- Sept 5200 to 5000.
- November 5350 to 5000.
If you bought the IOZ at these low levels and we end at 5600 this year, then you’ll have made money six times. If we get to 5500, you’ll be winner five times, which is not bad but, right now, you’re out of the money three times. At least give me a year to prove my advice was OK!
But all this analysis underlines a really important point about how silly we investors can be. Sure, we should try to be as professional as a fund manager because we’re managing our own super funds but we don’t have to assess ourselves quarterly or annually.
I really deserve a couple of years from a long-term investor point of view to make money on this ‘buying the dip’ strategy, so let’s imagine we see the index eventually make 7000, then there’d be really great gains.
And even if there is a 30% crash that takes us to 5000, then your actual losses from a crash would be quite small as well.
Of course, this analysis rests on us getting to 7000 but we did crash from 6851.5 and history suggests that we usually pass the previous all-time high before we crash again. These are strange times and history can change but I think we have a good chance to crawl as high as 7000 in coming years.
On that basis, buying the dips looks like a pretty smart play. That’s my story and I’m sticking to it.
Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.
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