SMSF investors risk being sidetracked by unending speculation over whether the market is currently overvalued or undervalued, which could result in poor investment choices, an investment executive has warned.
Prime Value Asset Management chief investment officer ST Wong said there was currently more anxiety than usual over the market’s valuation.
“Current uncertainty over valuations can have a negative impact on SMSF investors by encouraging them to retreat from the market and miss good buying opportunities,” Wong noted.
“In the news media and online, we often see the question ‘Is the market expensive?’ but we think this is the wrong question to be asking.”
He said there were three reasons why the question was trivial.
“You invest in stocks, not a market – it pays to remember you own companies and this is where the focus needs to be,” he said.
“Whether it’s a bull or a bear market, high or low market valuation, investors need to be looking for individual companies with sustainable earnings, good management and attractive valuation.
“The only valuation which really counts is at company level.”
The second reason was that index numbers could be misleading and questions over market value often intensified when the index approached milestones, such as the Australian Securities Exchange coming close to the 6000-point mark but pulling back again, he said.
“The obsession with market milestones can mislead SMSF investors by creating either misplaced confidence or fear,” he warned, adding that while the market had climbed higher for most of 2017, good investment opportunities could still be found.
“There is still good value if you look on a company-by-company basis.
“There are several fallen angels which may offer good opportunity for investors.”
Finally, worrying about market valuations might lull investors into short-term thinking, which was counterproductive to SMSFs’ aim of building long-term wealth, he said.
“Short-term thinking makes SMSF investors more reactive and more vulnerable to making poor choices on both the buy and sell side,” he noted.
“The challenge for investors is that short-term thinking is currently very persuasive in the market.
“They need to be strong, stick to their rules and focus on the mid to long-term strategy.”
