The Market Wrap 13-1-12

By Jason Fittler

Contrarian 

We all like to think we walk our own path influenced little by the world around us, even that we influence those around us. This week we were shown that in the financial world this is not the case.

The victim was QBE; the herd were most of the major investment banks.  After announcing a 50% drop in profit for the year and looking to cut the dividend the priced dropped 20%. The very next day the large investment houses dropped their price target to fall in line with the current price.

It was not unexpected that QBE would have a disappointing year same with IAG and Suncorp, what is surprising is why it was sold down so hard given that the price has already been dropping over the previous months.

It comes down to the herd mentality.  

Managers of large investment portfolios are playing with your money, not theirs. Their bonuses are based on them achieving a result better than their competitors being other fund managers.  They do not care if they lose, only that they lose less than the other guy.

To me QBE is a buy for the longer-term investor.

The aim is to buy low and sell high. You will never buy a stock cheap if everything is going well, it is only on poor results or a mishap that the price of a company will fall below it fair value. This is when you buy, against the herd.

The trick is to know the company inside and out and be comfortable waiting for the turnaround.

All good quality companies will turn, take ANZ which was below $14 in 2009 now $21.

We have again this week seen the market make a higher low, all of the big investment banks are negative on the market and across the globe we are hearing that China is slowing, European countries are having their credit rating drop and housing prices are coming off.  

To me this points to the market being close to a bottom, making now the time to start getting cash back into the market.

Ask yourself, which bank do you use, will you be shopping at Coles or Woolworths this week and are you going to stop insuring your property?

These sectors are good long term investments; I can assure you that everyone will also be using these businesses.