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Understanding paradigm shifts key

An environment of sluggish, low and no growth was making it difficult for SMSFs to locate quality investment opportunities, but paying attention to the patterns playing out in markets can help trustees to make more confident decisions.

“This is probably one of your biggest issues – where do I find safety?” Henderson Maxwell chief executive Sam Henderson told the SMSF Trustee Empowerment Day 2015 in Sydney in September.

“At the moment, it’s very difficult.

“You need to understand paradigm shifts in markets and how they will affect individual stocks because you’re not buying three-letter codes on the market and gambling with those, you’re buying whole, real companies that have staff, income and expenses.”

Henderson said recognising how those changing settings affected companies was key to identifying investment opportunities.

“For example, JB Hi-Fi has done a great job in their online presence and they’ve done a great job with their in-store promotion – you walk into the place and everything looks like it’s on sale so people want to spend money,” he said.

One of the driving forces of continued low growth had been central banks pumping economies with cash and liquidity, he said.

“What have we seen as a result?” he said.

“We’ve seen share markets react proportionately to the amount of help required from the central banks, so share markets have run pretty hard.
“The US market was looking overvalued a few weeks ago. That’s been taken care of, so the US is looking pretty good.”

However, when unemployment rates fell, so did the share market, he said.

“This is the frustrating bit about managing a portfolio – good news comes out, the share market falls,” he said.

“The general theme has been excess supply and insufficient demand, and the symptoms of that is the absence of inflation.

“We’ve seen interest rates go down, but what’s happened to Australian GDP (gross domestic product)? 

“Bugger all. We’re looking at maybe 2 per cent this year at best.”

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