The official rate of annual inflation in Zimbabwe tripled to 66,212 percent in one month - December, maybe the highest in the world but still less than half that calculated by independent analysts.
And in the great US of A Countrywide Financial, their biggest mortgage lender, has reported a 41% fall in home loan sales. Their foreclosure rate on their nine million mortgages doubled to 1.48%. And the delinquency rate - missed mortgage payments - rose to 7.47%.What have these, and those alike, interesting tid-bits have to do with us – directly? little really except they serve as fuel in our own market place - with heaps of bad press, fear mongering masquerading as gospel or more scarily, formal analysis.
We now have folk comparing today with other challenging market periods over the last 100 years, including the Great Depression, World War II, the 1973 oil crisis and 2000 tech meltdown. In reality the investment landscape here at home, finance company failures aside, that we are experiencing are occurrences in a market cycle that should be expected in longer term investment strategies. However, it’s the noise that comes with that market volatility that causes investors to suffer.
The US sub-prime crisis, has not come to New Zealand and in the main, residential lenders have not adopted the late stage ‘low-doc or no-doc’ loans, the so called NINJA (no income – no job) loan policies – yet we are fretting about property values dropping. Yes agreed, we are too heavily indebted and that should be a priority and our mortgage interest rates while among the highest in the western world are still much lower than they were twenty years ago and folk with a long term view survived.
While sub-prime has not visited upon us as a nation the mentality has, and yes some investments have been blighted by the international credit quality fall out. But is that a reason to toss a long term investment strategy out the window? I don’t think so.
Recently a number of companies reported their year to December or six month performance and to reinforce my observations just have a look at two that support my view of gross investor stupidity - or is that fear.
Cochlear – A world leading hearing technology company reported a record profit result. A 17% rise to A$57.1 million. They further confirmed forward earnings guidance of 15-20 % for this financial year. These earnings growth numbers have been similar for some years now. For that outstanding effort the Directors saw the share price sold down that day by over 9.00%.
JB HiFi – Again a record result, for the past four years they have surpassed the previous full years profit by month six. They upgraded their profit forecast by 43.00% to A$60 million – the share price was slashed by over 8.00% on the day.
Closer to home Fletcher Building was similarly treated. Is this the response of sane thinking, steady, wealth building long term investors – dump and run on one dark day, I don’t think so.
At present you may have folk questioning their investment strategy and the investments they hold – if you don’t have the ability to forcefully remind folk that investing is about the impatient forfeiting much future wealth and the patient gathering quality assets at a discount - give us a call.
Let us help you remind them to be greedy in an atmosphere of fear, now maybe is just the time to be mildly greedy, selectively buying – not selling.
Original Article published February 2008
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