Portfolio managers are being pressured to invest and some are trying to play catch-up to the market as many have underperformed their benchmark.
It is therefore likely that more and more money will start pouring into stocks and this will continue next year. What is the best Christmas present investors can hope to get from their share portfolio?
Well it’s always nice when it is announced that one of your investments is to be bought by another company. Buy outs are usually priced at about 20% above the ruling price before the announcement is made. So that’s a nice present. The problem is that you have just lost an obviously attractive investment and where are you going to invest the proceeds? And don’t forget the taxman and your capital gains tax. He is also getting a present.
Another nice gift is if one of your companies announce earnings that are way above market expectations – a nice vindication of your research.
Or perhaps a highly respected analyst puts out a strong buy recommendation on one of your investments.
When this happens your investment may rocket by 10% or more and this may only be the beginning. Other analysts will now increase their forecasts and look more carefully at the company. After deeper investigation they may increase their forecasts even further and this will result in an even higher share price. The market may now rate the company as even more superior and on a higher earnings multiple.
Investors should refine their research efforts and be aware of what gave rise to the above average earnings or the earnings upgrade. Is this a once off or a sign of better things to come? What we want here is sustainability or a permanent competitive advantage. This is very hard to come by. The internet, the free flow of information and intense competition from every direction means that a monopoly enjoyed today may be gone tomorrow so, investors need to be ever vigilant.
Donald Trump will kick start inflation and growth in the US and this will be good for stocks in the New Year. Growth stimulates corporate action and new listings will be aggressively promoted. Obviously these opportunities should be carefully vetted as some will be purely opportunistic and lacking in long term sustainable value.
I wish all our readers a peaceful Christmas and a prosperous New Year.
Extraordinary profits from ordinary shares – Winning stock market strategies