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Investing for Total Return

Over the last few years there has been a significant move towards investing into yield. This may be because of the lower interest rate environment we are in or perhaps its just my clients moving closer (as a group) towards retirement. Either way, it is a large shift from the pre-gfc investment environments.

So as an investor is it better to look for high yielding or high growth opportunities or would it be better to look at total returns?

In March 2009, which in hindsight was the bottom of the GFC. The ASX S&P200 (XJO) was trading at 3145. Currently it is trading at just under 5300 (this follows a recent fall from near 6000 in Mar15). Using a pure capital growth calculation it has regained an impressive 2155 points or provided an increase of 68% if you were lucky enough to have purchased at the bottom. Unfortunately if you bought at the top of the peak (6748 in 2007) you probably still have losses.xjo v xjoai

If you look at the same time frames on the Accumulation index XJOAI, which is the ASX S&P200 plus dividends reinvested. In March 2009 the XJOAI was 21298, its last price as 47385. This is a gain of 26087 or 122%.

The chart on the right shows a 10 year comparison between the 2 indices. The XJO after 6 years has failed to reach the highs of 2007, but the Accumulation index shows us a completely different result.

asx sectorThe companies listed on the ASX are predominantly made up of Banks (financials) and Miners (materials) combined they amass over 60%.

So for our market to rise in its current form we will need strength in these sectors. With current pricing in commodities we are unlikely to see another mining boom in the next few years, yet better value in commodities is more likely – and the banks are in a pattern of low growth. Considering these facts, unless the sector weight changes happen for our top index we may struggle to get back to the 6000 level where it found resistance earlier in 2015.

2015-11-18 16_38_19-Monitor 4

From the table above, you can see just a couple of stocks in the top 200. Both CBA and TLS have the highest yield but the overall return for 12 months is negative – Where the other 3, have a low or modest yield but the 1 year returns are very impressive.

So the moral to the story is, unless you are investing for pure yield (meaning you need the income to live off) you will always be better off trying to focus on total returns rather than just the dividend.

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Week in Review

 

xjo31may

This week in the market saw only small sideways movements dropping 57 points over the 5 day period. Those reading last weeks technicals will notice that we are sitting on the low 4900’s decision point. We could see one of 2 things from the XJO this week – either the prices will fall through the 4900 level and head down towards the 4700 level or it could bounce off this support and head back towards the 5150 level. Either way, we may be in for a wild week. Continue reading “Week in Review”

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Week in Review

MetaStock - [Chart2 - S&P AUST INDEX ASX 200 INDEX (Trade Price)]_2013-05-24_16-50-03

This week started out slow and steady, trading in a small range bound to the 5200 level. Wednesday had a close towards the low of its range and then things got a little crazy, closing at 4983 – a drop of nearly 4%.

Thursday and Friday saw the market drop 177 points driving the XJO chart through the rising trend line. At one point today the XJO was trading at 4954, but traded up in the last 90 minutes of the session.

From the chart right you can see that the market is approaching an intersection of 2 lines, a horizontal support line and a rising Fibonacci line, I would expect the XJO to pause and perhaps consolidate at this point. The chart should reach this zone quickly, perhaps Tuesday of next week. Continue reading “Week in Review”

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Week in Review

xjo-17may

Another week trading within a very small range, we see the XJO trading sideways holding ground around the important 5200ish level.

Over the next week, look for small falls on the XJO down towards the rising trend line, this opinion is based on both the CCI and MACD which are just about to cross to the downside, we should see the market retesting the current trend at around the 5100 level.

This level is important as it will show how strong the overall market is, should the XJO bounce off the rising trend line, we could easily see the market rising towards the 5500 level within a few months. Failure at 5100 will see us fall quickly back towards the 4900 level.

A Shift from Financials Technically

The financial sector has led the charge over the last few months. In the last 2 weeks we have seen a noticeable drop off in strength, partly because of the dividend pressures in May. Nonetheless the MACD has signalled a move to the short side, with the CCI about to do the same. Notice the chart moving towards a triangle shape with the centre being support at the 5700ish level. Continue reading “Week in Review”

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Superannuation

If you have ever wanted to take a little more control over your superannuation and not bother with a self managed superannuation fund this may be of interest.
of us that are/were self employed This could be quite valuable for those

without a lot of super, perhaps an smsf is too expensive or too time consuming – the AMG product may be just what the doctor ordered.

If  your super its just sitting in a dusty fund collecting the minimum – take a look.

Let me know if you would like to explore this

 

 

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Options Writing on your portfolio

One of the things I love about options is that there is nearly a strategy for every market condition.

Rather than using the same strategy accross all conditions which may give you questionable results, tailer made strategies can be used to take advantage of current conditions. One strategy that has been adding a lot of value to shares inside an existing portfolio is Covered Written Calls.

Below is an image showing trades taken on an actual account over the last few months, prices noted are per share in cents. Each trade places cash back into the trading account, when the trade is taken. Brokerage is not considered in this diagram.

Now there is risk with any strategy, understanding how to manage that risk is the secret to being profiatble with any strategy.

So if your leaning towards the risk averse end and you would like to add some value to your return, you do have a few choices.

If you would like some examples or a couple of strategies that may suit your style, please give me a call on 0402 855 800 or shoot me an email to steve.soars@gmail.com

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Trading in Chaos

Trading in current market conditions is hard – there is no getting away from that fact. But how has your trading plan or style changed as a result?

As traders we continually need to tweak our trading plan to take advantage of current conditions. Currently we are facing small trends sometimes only days and periods of uncertainty.

Lets look at a couple of things that you should be doing in the current uncertain times;

  1. Keep stop losses further away, this will also force you to take smaller positions sizes to maintain your important risk management rules.
  2. If the market you are trading does continue to be profitable increasing your position can be viable – remember to use appropriate risk strategies.
  3. Be patient – wait for the trade to identify itself, to not try to pick every change of direction. If there is no trade today, there will be one shortly.
  4. Remove all lines from your charts and reapply  – this allows you to revisit the charts with a new perspective.
  5. Investigate different markets – if you normally trade shares or cfd’s, look at forex or commodities – remember to  control your risk and exposure.
  6. Always trade with the strongest trend.
  7. Be willing to accept smaller profits on your trades, gone are the days of weekly or monthly short term trades – short term trades are being currently measured in days or even hours.
  8. Lock in profit as your trade improves, this requires more attention but it is essential in current conditions.
  9. Draw a line in the sand – if you are suffering losses, identify a level in your account where you will stop and take a break – everything looks different after a week or so of inactivity, hopefully this will allow you to refocus and make smarter trading choices.

Happy Trading

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Range bound or an opportunity?

In the last 13 months the AXJO has been trading sideways, I’m sure not a surprise to anyone. Those trading this period have been consistently scratching their heads about future direction – even professional traders have had troubles.

Looking at the chart (right) we can see the extended range between the peaks and troughs of the last year spanning around 800 points – take a mid point to that around 4580 and notice that within a small range how many times the market has changed direction.

During the last year we have been bombarded with tiny wins and losses from not only on our shores but from around the world – most of which should have no bearing on our market but alas they have. When we overlay the DJI onto the AXJO (below) we can see that the US market is acting a little bit more stable than ours. I have also added additional 1/2 markers from the mid point to the extremities which have also acted as support/resistance points.

This direct comparison surprised me a little considering the constant bombardment of “how strong our economy is”, and “how unstable the US is”. On the other hand it also shows us that there may be better opportunities in Australia than in the USA.

From the chart right, we are seeing the 50 day moving average now start to cross the 200 day moving average, this has always been a good sign for trend traders, lets hope our index can break out of this tight range and forge some solid gains over the next few months.

Happy Trading

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The trend is your friend?

Governments around the world did a fairly good job injecting funds into schemes to “kick start” their economies from the lows of early 2009. Eighteen months later we have seen a 50% retracement from the “Bear Market” through 08, with markets gaining ground nicely.

The steam started to come out of the market late 2009, transitioning from a nice bullish pattern into a sideways channeling movement. During this phase we started to see the hangover of the short 09 bullish surge.

Once the AXJO dropped below support at the 4500ish level in May 2010, the market shifted into a downward trend once more.

One of the biggest sayings in trading is “Trade with the trend – The trend is your friend”, the way we identify longer term trend changes is using the peaks and trough positions on the chart.

With that information, we must identify we are again with the Bears. So what do we do with longer term portfolios?

Three choices exist;

  1. Let it run, over the longer term the market will fight its way back to previous levels – provided the shares within your portfolio are sound.
  2. Exit your positions – bank your profits or cut your losses.
  3. Take an opposing positions to offset losses. This is called hedging.

Whatever you choose, make sure you take into consideration all the “pros and cons”.

The trend is your friend? Only if you recognise it and act accordingly.

Happy Trading