It’s official: investors are freaking out.
Global share markets are plunging.
Interest rates are going up.
The bull market is finished.
There’s nothing you can do but sell everything and hide out, right?
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Wrong…
Everything I’ve just told you is bunk.
It’s what the mainstream press wants you to think.
Most of these guys are so backward looking that it’s generous even to say they’re living in the past.
Here’s why each of the worries I’ve pointed out above are overblown…and a simple strategy that can put your mind at ease.
Take the Australian share market.
If you say markets ‘are plunging’, that implies you’re betting that they will fall further.
I don’t buy that.
Yes, the Aussie stock market has blown off some steam.
You shouldn’t be surprised. Over the past two years, the Aussie stock market has taken a short-term breather every couple of months.
Every time this has happened, stocks have rebounded because investors know the US Federal Reserve has their back.
The Fed has had the money-printing taps fully switched on. That has encouraged investors to take more risk if they want any return…and that has pushed up the prices of risky assets.
A policy as ferocious as this doesn’t turn on a dime. Make no mistake; the Federal Reserve will continue to support markets.
The central bankers…and the asset-rich elite who they serve…wouldn’t dream of changing the course.
What’s more, the European Central Bank and the Bank of Japan look set to keep the world swimming in cash. If the Fed dials down its support, they’ll intensify theirs.
That means low rates are here to stay.
We saw proof of that overnight, when the Fed released the minutes from its last meeting.
Surprise, surprise…the minutes confirmed that the Fed would keep rates low for a ‘considerable time’…and US stocks scored their biggest one-day gain of the year.
But even to say global share markets have plunged would be wrong.
The proof is out there. Investors just have to take off the green-and-gold blinkers.
You see, Australian equities are worth a total value of around $1.5 trillion…or just over $1.3 trillion in US dollars.
That’s just 2% of the total market capitalisation of listed companies around the world…which is more than $64 trillion.
Our insignificance on the global stage — at least, in terms of market cap — means many things for Aussie investors.
Here’s one of the outcomes: what happens to Australia’s economy, and by extension its stock market, is not necessarily the same as what’s going on overseas.
Yes, Australia’s benchmark S&P/ASX 200 [ASX:XJO] has shed 6% of its value over the past month — but stocks in certain other markets haven’t done too badly at all.
For example, Chinese stocks, as measured by the Shanghai Stock Exchange Composite Index [SHA:00001], have shown remarkable resilience. Chinese stocks have gained more than 2% over the past month.
That has capped a healthy three months for the Chinese market, where investors are now more than 15% richer than they were in mid-July.
This has played out in line with what our Emerging Markets Analyst, Ken Wangdong, has been telling investors for some time.
Ken’s analysis has shown why emerging market index investing can be better than index investing here in Australia.
I’m not trying to tell you that Chinese dominance over Aussie stocks is necessarily here to stay.
But it goes to show that losing the investing ‘home bias’ can reward your portfolio.
Take on the tycoons
Most Aussie investors put overseas stocks in the ‘too hard’ basket.
They think that just because a company’s shares trade on an exchange on foreign soil, they must be too far from the action.
Investors with this mind set think their decision-making can’t possibly be as wise as someone who lives fewer metres from the Shanghai Stock Exchange, or the Toronto Stock Exchange, or whichever.
This is an easy, simple way to view the world.
But it’s lazy. It ceased to be relevant years ago. And I hope you haven’t fallen into it.
You see, markets run on the flow of information. In the old days of smoky backroom deals near the downtown exchanges, the distinction between ‘inside’ and ‘outside’ was a lot clearer.
A faraway investor wouldn’t have dreamed of taking on the tycoons who installed themselves close to the action.
But those days are long gone.
The internet has broken down and reformed so many industries over the past few decades. It has vividly changed the investment business.
Freeing up the flow of information means anyone can profit from movements on any market. The internet has taken that power away from the few and bestowed it upon many.
Any online broker worth their salt now offers access to overseas markets.
So the next time you see a bearish headline from the mainstream press, who want to throw your investments under a bus…don’t get sucked in.
Just because one market has taken a breather, doesn’t mean the trends don’t look positive elsewhere. And now more than ever, you’re free to take full advantage.
Cheers,
Tim Dohrmann+
Editor, Money Morning
The post How You Can Beat the Stock Market by Taking off the Blinkers appeared first on Stock Market News, Finance and Investments | Money Morning Australia.
