The Waiting Game

The Waiting Game

Waiting is boring. It’s particularly boring for anyone who likes to be active, making things happen, making decisions, seeing the consequences. Waiting is a passive activity not suited to the sort of people who are likely to run their own SMSF or investment folio.

Having been convinced that a significant market correction is imminent and shifted to a much higher cash position than usual I am now waiting for what I believe will happen, but will it?  I’ve been waiting a while now.

The theme of waiting for something intangible and which may not ever happen is beautifully described in Samuel Becket’s famous play “Waiting for Godot”. Described as a tragic comedy the play presents two people bored with waiting for Godot to arrive. They don’t know when he will arrive but are led to believe it will be tomorrow. In the play Godot never comes but the interaction between the two bored characters waiting provides remarkable entertainment. I’m beginning to feel like them.

All that has happened since I increased my cash position is that the market has continued to rise. Not dramatically, but rise nonetheless. There have been a few dips just to encourage me but they are not sustained drops and I watch as opportunities to make profits go by. That doesn’t change my conviction that a correction is both likely and imminent but it does test my resolve. Sitting and waiting doesn’t come natural to me. I much prefer action and have been tempted to make a few short term trades. I have taken advantage of the Macquarie share offer and made a nice profit. I sold my original holding when the share offer was announced and took up the maximum rights at the last minute leaving me exposed to a fall for just 8 trading days. Thankfully that move made a very nice profit and satisfied my desire to do something.

In managing an SMSF in pension phase the critical issue is to preserve capital, or as Warren Buffet puts it “don’t lose money”. Forgoing some profit in the pursuit of that objective is to be expected. It’s a gamble but one where the downside is limited. The expert advice is as varied as usual. There are those saying we have run too far for too long and on that count alone can expect a correction. Others cite high earnings ratios and over-exuberant buying of low yield stocks. Many focus on the state of the world economy and the politics being played out in the US, China and Europe. There’s no doubt that we are in a period of political turmoil which will take time to play out and that will affect the stock market.

Against all that there are commentators convinced we are not in an overbought situation. That the graph of the ASX 200 does not show an exuberant spike and is in the middle of the normal range. I, as an investor, must choose who is right. I have to choose, or at least hedge my bets. I haven’t gone to 100% cash but have held on to some good long term stocks, particularly health stocks.

I am now looking at what could happen to cause the correction which I expect, or what could go well and lead to continued growth. Donald Trump and China have to be top of the list. Trump is regarded as a skilled negotiator, but he is up against the Chinese whose reputation as negotiators is legendary. Who will win? The great advantage for the Chinese is that they have time on their side. President Xi does not have to face an election next year to stay in his job, he has time on his side. He can use that to his advantage, particularly if he decides he would rather negotiate with a new president. He also doesn’t depend on a rising stock market to keep his job. The cards seem to be falling in his favour right now with the US recording its worst manufacturing performance for decades.

In Europe disruption seems to be the order of the day. The Brexit negotiations and political consequences seem to be in unending turmoil. Will it all come to a head-on October 31? Or will there be yet more extensions of the deadline? Brexit’s domination of the news has obscured the financial problems of Germany. Long the powerhouse of the Europe, Germany has recently run into its own serious economic problems and will need to look after itself as well as propping up the rest of the Union. There may be some hard times ahead for Europe.

Where does all that leave Australia and Australian investors? Despite my natural optimism, I’m expecting a pullback. It seems much more likely than not and that’s why I have a much higher cash position. Should I go further, follow Marcus and go entirely into cash?


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