Share price surge prompts fresh warning to new investors

A SURGING Australian sharemarket has been feeling the love, but people are being warned against rushing into the buying spree now.

Share prices have been boosted by falling interest rates and local and overseas investors seeking generous dividends paid by Aussie companies, which has prompted concerns they may be due for a fall soon.

There was a slight sell-off this week but the All Ordinaries index — which measures the value of our 500 biggest companies — has still climbed 14 per cent since December to close to 5900 points.

Among the big companies to bounce strongly, BHP Billiton is up 19 per cent, Westpac up 20 per cent and AMP up 23 per cent.

 

Catapult Wealth director Tony Catt said he was a fan of billionaire investor Warren Buffett’s famous quote “be fearful when others are greedy and greedy when others are fearful”.

“It’s a great quote and I have used it a number of times with my clients,” he said.

“Everyone’s in a hurry to get the returns, and the fear of missing out is starting to kick in at the moment. The emotional behaviour is worrying.”

Mr Catt said most advisers felt that now was not the best time to pile into shares, and a better strategy might be to spread your investing over several months.

“The future is murky at the moment. It’s unpredictable, so tread carefully.”

Quay Equities managing director David Reynolds said that late last year some share analysts made an “optimistic call” and tipped 6000 points for the All Ordinaries by the end of 2015.

“We have just done it in three months,” he said.

“I’m not saying stock prices are going to crash, but it is more than fully valued.”

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Mr Reynolds said new share investors should understand how diversification would help them ride out the market’s ups and downs. “Don’t put all your eggs one basket, and don’t allocate all your funds upfront,” he said.

“Contribute over time, on a monthly or quarterly basis — the compound return you will get is better than trying to time the market. Take a sensible approach and get advice.”

Macquarie Private Wealth division director Kieran Purcell said his firm was still positive about shares, but most of the big gains had already occurred and investors should not expect this pace of growth to continue.

“I would say it’s still a good time to put some money into the market, but I would hold some funds back as I would suspect there will be some pullbacks over the year, which might provide some good buying opportunities,” he said.

“We caution that stocks are looking fully priced.”

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