Risk of doing nothing
H
ere’s the truth about
investment. You don’t
get everything right.
Far from it. You don’t control
the process. The fact is, most
of the time you feel as if there’s
little control at all. You will
lose money. Simple as that.
If you want guarantees, keep
your money in the bank. At
least the government will
guarantee you $250,000 per
deposit. But in the long term,
after tax, your money is
probably losing value to
inflation anyway.
Now money in the bank is
not always such a bad thing.
Especially if you’ve taken the
attitude that there’s nothing to
buy. No value. The real answer
is to look harder or to look
longer term. It is only a genu-
ine pessimist, or panic mer-
chant, who cashes in everything and claims
the sky is falling.
But even a move to cash comes with risk.
Timing is the key and here we go back to
that sense of a lack of control that most
investors feel. Those who do try to control
the timing of investments, if discovered by
authorities, generally end up behind bars.
Experience when investing provides a
greater sense of calm when there are fewer
opportunities or when asset prices are fall-
ing. But this takes great discipline.
Most recognise that falling prices equal
buying opportunities and rapidly rising
prices generally equal selling signals. But
what happens when low inflation and low
wages growth cause nothing much to hap-
pen for a very long time?
That is something most Australian
investors have never experienced.
Normally, something is happening to move
the stockmarket: high inflation equals
buying growth stocks and holding on; low
AT LARGERoss Greenwood
Ross Greenwood is Channel 9’s finance edi-
tor and Radio 2GB’s Money News host.inflation equals falling interest rates
equals defensive stocks including banks
and property companies.
But nothing? Well, that’s a different story.
There is one recent example of a fund
manager bailing out altogether, though
reports of the individual circumstances
behind that story suggested it was more
than a big market call.
The fund manager is supposed to be the
person who finds the opportunities. They
are paid to deliver growth though, truth
known, many of them struggle to even
match the basic indices that track the mar-
kets. So over 10 years – which takes in the
GFC – according to Morningstar only seven
of 42 diversified equity fund managers did
better than 5% a year. Seven!
You might argue that your money was
better off in the bank. But it should also be
noted that most of those same fund manag-
ers have produced returns of 10%-plus a
year over the past five years. As they say,you must take the rough with
the smooth. For most people,
the obvious point is that they
do not have the time of profes-
sionals to scour the market for
timing and opportunity.
But as with every investor,
professionals get things wrong.
Wrong in strategy; wrong in
timing. The issue is that their
job is to keep searching for
things to buy. Some might have
the right to go to more cash,
but are you paying them to pro-
tect your money or to invest in
the stockmarket?
A good example of this is in
the stockmarket itself: one of
our biggest companies, Wes-
farmers. It owns Coles,
Bunnings Warehouse, Target,
Kmart and Officeworks – all
big retailers – along with coal
mines, fertiliser companies,
chemicals, ammonia, gas and even tools
and safety equipment.
The management of Wesfarmers has
long said it prefers to run a portfolio of
assets to even out the dips and troughs in
the economy. But there are many investors
and fund managers who would prefer to
make their own choice about whether they
invest in retailers or coal mines.
Even the current fight over the strategy
of BHP is about who should control the
value locked inside the business: the
management or the shareholders who own
a decent chunk of the shares.
But this same debate even comes down
to your own portfolio. In other words, if
you invest via fund managers, ask yourself
not only who is making the decision about
what to invest in but who is making the
bigger call about whether to invest at all.It takes great discipline to keep calm when the sharemarket is struggling