Newsletter Update July 2006

Investment Matters – Really !!! Given the volatile nature of markets this month we thought it prudent to provide some insights.  One of the most important aspects is that people trading these markets - are “People”. Yes, human beings just like you and me.

This is a very basic understanding. “Trade” is ancient. The value of a “Trade” has varied over time as have currencies. Ranging in some places from sea shells to florins, duckets or even the 4^th Century Egyptian Denarii.

No matter what the method of exchange for goods and services. The VALUE was always based upon human perception. Look at your $10 note - a piece of plastic with ink on it !!

The age old question of “what is it worth”? A human perception based upon all sorts of concepts, predominantly Fear and Greed.  The value is what it will buy. It is called representative wealth.

Market value and indeed the “currency” we use has historically been a measure of human imagination. Therefore the value of assets is extremely variable due to “human imagination”. Look at the stock market or property market and you can see variations every minute and day due to “people’s” perceptions.  

Ahh – the psychology of the crowd. 

Optimistic crowds borrow money, accept risk readily and invest “for the long term”. Pessimistic crowds avoid lending and borrowing, dislike risk and think short term. These things are generally accepted. When you see a graph of shares or any market for that matter. Get a “feel” for the market and you can see when the crowd is Optimistic or Pessimistic. If you can gauge the market psychology you can often understand where markets are heading, going forward.  

Old adages such as “never a borrower, nor a lender be”, “spread your investment to maximize your return and limit your risk” or “property prices never fall they just don’t go up for a while” - appear at certain times in markets.  They are not facts, rather a measure of the market "mood" at the time.

When markets have had a big fall and lots have gone broke - debt becomes unpopular. When markets have risen long enough for investors memories to fade, then risk and debt become more acceptable. Changes in mood. Optimism and Pessimism. Neither of them last forever.

The long Bull market from the late 1980’s to March 2000 being the longest bull market in recorded history. The Recession in Australia of the mid 1970’s when property prices in Adelaide fell by about 50%.    

Disclaimer: This newletter is for educational purposes only. Investment advice is not offered, implied or provided here.