Is our market lulled into a false sense of security?
One look at the best performers on the ASX tells you the market is sanguine about risk. How else to explain the soaring valuations of companies like Afterpay, Appen and Altium? I fear this is the calm before the storm, and today’s high returns and low volatility might soon make way for lower returns and higher volatility.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Anthony
:
HI Roger. This is a very pertinent article, thank you. In early 1987 there was a buoyant mood with very little attention to risk or the over-valuation of shares. There were warning bells but they were largely ignored by enthusiastic investors who didn’t want to miss out on further gains (including me). But then it crashed. The same happened during the boom years prior to the Asian financial crisis of 1997, the dot com boom of the 1990’s followed by the bust in 2000, and more recently the GFC in 2008. In each case prices had been rising and many investors were making big money. The risks and over-valuations were appearing but they were largely ignored because investors don’t like to miss out on further share gains. But then the dam bursts and everything comes crashing down.
Today, we have a steadily growing number of global risks associated with political instability across the western world, rising geo-political tensions and trade wars, increasing social polarisation, rising debt levels across the whole world, and a series of small and mid-sized countries that are slowly approaching financial ruin. In Australia we have a dysfunctional political system, massive household debt, an ever increasing number of manufacturing industries leaving the country due to high power and labour costs, and a generation of adults who have never experienced a recession.
Soon there is going to be a very big wake up call. I have no idea what the trigger will be, but I suspect it isn’t far away.