First published 7 May 2020 for Mancell Financial Group
How do we see investing right now? No differently. We had one of the worst months on record for the Australian sharemarket followed by one of the best. This is to be expected. Reactions can be extreme, but one of the features of markets is how they respond to opportunity. This is true for every market. The NSW government last week announced over 1,800 businesses had stepped up to fill supply chain opportunities relating to essential medical equipment such as face masks and shields, hand sanitiser, disinfectants, gloves, surgical gowns and paper products.
While it’s extremely unfortunate for some businesses right now, many will look to find a way to continue operating, others will take up new opportunities. Some areas of the economy will change significantly and may not behave the same again. This raises an important point on attempting to pick winners and losers through the market rout.
There is a listed funeral company in Australia. Invocare. As news of COVID-19 grew and potential death rates were forecast, some investors (or possibly ghouls) began scoping Invocare for potential profit. Presumably on this belief, Invocare seemed to weather the market sell off, holding up as most of the ASX sold off. Then the reality set in. Limited gatherings meant funerals would be low key, austere events. There would be none off the many funeral add-ons Invocare would profit from. When this clicked for investors, the Invocare shareprice promptly fell 28% in a week.
Inexperienced investors making what they believe to be ‘obvious’ or ‘rational’ decisions about specific companies or sectors can find themselves in trouble very quickly. Especially in a time like this with heightened volatility. There are a lot of stories flying around the internet now about trading losses. Whether some are made up for shock value or entertainment, there is likely some truth to them.
A consumer solvency expert in Canada recently spoke to a client who had lost $140,000 trading stocks. The losses were on credit! Back in Australia, ASIC just released data showing a spike in retail broking accounts being created since the market turmoil began in late February. Account creation increased by 3.4 times the usual amount. This suggests that some have figured out market sell offs can be opportunities. Unfortunately, in this case these new investors might be in over their heads. As ASIC noted:
Even market professionals find it hard to ‘time’ the market in a turbulent environment, and the risk of significant losses is a regular challenge. For retail investors to attempt the same is particularly dangerous, and likely to lead to heavy losses – losses that could not happen at a worse time for many families.
The analysis suggested few pursuing quick windfalls were successful. During the focus period, on more than two thirds of the days on which retail investors were net buyers, their share prices declined the following day. On days where retail investors were net sellers, their share prices more likely increased the next day.
In other words, buying high and selling low. We don’t think any time is a good time to trade stocks, but this is an especially bad time. And especially bad for beginners!
If you are moving towards age pension eligibility, this is something to keep in mind: a connection within Centrelink has reliably informed us that any Age Pension applications will see significant delays. Any application starting today is unlikely to be fully processed with payments beginning before October. Centrelink’s current workloads have been prioritised to focus on the Job Seeker payments.
For those clients reaching Age Pension eligibility, we recommend the application process is started 13 weeks before eligibility date. The suggestion is the application should start earlier, this ensures someone is in the system sooner, reducing the likely delay of payment.
