The outlook for 2009 is far from certain and there is considerable debate as to whether the market has bottomed, and whether we will see any substantial recovery within the next 12 months. To be honest I’m not entirely sure - although my feeling is that we won’t return to record highs until at least 2010. In any event, for your long term investments I don’t think it actually matters too much. The important thing to remember is that you will have the opportunity throughout the year to load up on quality stocks at heavily discounted prices.
Remember that in order to make some great investments, you don’t need to buy in at the exact bottom. Indeed, as long as you are near the bottom you will be doing well over time. So forget about trying to pick the bottom. In 10 years time will you really care that you picked up Macquarie Group at $35 instead of $25? Especially since you are likely to receive a regular and rising income stream along the way.
In fact, the fantastic yields that are on offer are another great reason to get into the market right now. The big four banks are offering yields of over 9%, and although some may well lower their dividends over 2009, the yield is likely to remain well above the long term average. Factor in franking credits and you have a very powerful argument to buy in now, and buy in big.
Remember that we are not talking about short term trading, rather we are talking about your long term wealth creation plan. And from this perspective, it doesn’t really matter if the market takes an extra year to recover. Indeed, the longer it takes to recover, and the longer share prices remain depressed, the more opportunity you will have to build up your portfolio.
Even as far as your shorter term trades are concerned, a speedy market recovery is also of little importance in my opinion. In order to make money trading you really just need movement, and given the uncertain outlook it’s quite likely that we will see plenty of volatility over 2009. Granted, it may be more difficult to identify entry and exit points in a chaotic market, but the environment we are expecting really just reiterates the importance of considered, objective analysis and money management rules.
Finally, let me emphasize one very important point. While I think you should try and load up on as much quality stock as you can this year, ensure that you do not gear yourself to dangerous levels. After all, that’s a big part of what got us into this mess in the first place! In all cases, account for the worst case scenario and ensure that you can experience further capital downside without any adverse consequences (such as a margin loan).
Make the markets work for you