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What’s Next for the Stock Market?

05032018 what's next?

What’s Next for the Stock Market?

The market ructions in early February were a genuine ‘shot-across-the-bows’ – a warning to investors about the longevity of easy credit, soaring asset prices and ultra-low volatility.  That’s why, with markets potentially on the verge of a big reversal, we think it’s prudent to hold more cash.


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[1] The S&P500 TR Index rose 26.46% in 2009, 15.06% in 2010, 2.11% in 2011, 16% in 2012, 32.39% in 2013, 13.69% in 2014, 1.38% in 2015, 11.96% in 2016 and 21.83% in 2017.

[2] Dropping the negative earnings of 2008 from the CAPE ratio and adding 10% growth to the earnings number for 2018, has the CAPE ratio still at over 30 times and above all levels ever with the exception of the dotcom boom.

[3] The Sharpe ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk.

Roger is the Founder and Chief Investment Officer of Montgomery Investment Management. Roger brings more than two decades of investment and financial market experience, knowledge and relationships to bear in his role as Chief Investment Officer. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.


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This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564) and may contain general financial advice 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 advice from a financial advisor if necessary.


  1. Thanks Roger for the valuable info… It has helped me a lot over the last few years. I remember reading a Benjamin Graham book where he taught us that when markets are high we should reduce our holdings and increase cash… Im am now living overseas and still following your great reads…

  2. Thanks for your insights Roger. But what does a person , in the rather awkward position of having cash to invest right now do?… Sit on the sidelines and wait (perhaps for another year or two or three) for a correction and buy in “cheap”…or notwithstanding the dangers of a correction, put the money (right now) into a fund with a higher than normal cash weighting??

    • Typically investors who wait for a correction before investing become afraid to invest when the correction arrives. That’s one reason an active and professional manager may be preferable. We of course don’t know whether a correction is coming but we do know that our cash is an option over lower prices, while the invested part of our domestic portfolio has been consistently outperforming the market. The cash has been a drag and will continue to be a drag if the market roars ahead. You will note the Montgomery Global Fund has been outperforming even when the cash is included and that’s because the overseas indices such as the S&P500 and the MSCI have significantly smaller weightings to materials sector companies. One thing to remember is that the higher the price you pay, the lower your return. With PE’s stretched on many stocks, it appears that low returns are likely. the only question is whether those low returns are smooth or accompanied by higher that recent volatility.

  3. I was hit by the .com boom and I did learn a hard lesson, so thanks to Rogers ongoing reports I keep a third of my own assets in cash. There is no glass ball to see into the future, only experience gained by listening to the wise and cautious. Thank you Montgomery team for your endeavors.

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