Use your brain, you must Points of Interest – Summer 2015

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The end is nigh

This article, by Justin Baiocchi, was originally published in The Northern Daily Leader on 30 January 2016.

Outside of a cooking show like Masterchef, or a ‘talent’ show like Australian Idol, there can be few activities that generate as many opinions as finance and investing. If you want it, there is someone who will give their opinion on the future direction of interests rates; where the stock market is going to finish at the end of the year; what the Australian dollar is doing; what the next inflation figure is going to be; what wine the board of the Reserve Bank will drink at its next meeting (ok I made that last one up, but I’ll bet it has been discussed and predicted somewhere). My personal favourite is when the nightly news bulletin crosses to a reporter standing outside the stock exchange building in Sydney, who randomly accosts any passers-by to get their views on the stock market’s performance that day. I’m not sure we’re really going to get any useful information from such an activity, unless Warren Buffet or Peter Lynch happened to be stepping out to grab a sandwich during their lunch hour and foolishly made eye contact with the reporter.

The current stock market volatility has created a mini-boom in the opinion-giving and punditry business. Analysts, fund managers, investors, economists, taxi drivers, my aunt Fiona – everybody seems to have an opinion on the gyrations of the stock market and whether or not it’s merely a correction or the world is headed to hell in a handbasket. The first rule of Punditry 101 is that the more extreme your prediction, the more likely you will be invited back to the television show/magazine/newspaper/journal in the future, where the pressure will be on to amp your prediction into even more stratospheric hyperbole. Like the squeaky wheel gets the grease, the most bearish and gloomy commentator also gets the return invitation.

In the spirit of rampant opinion-giving, I’d like to give you my own (for free!). Are we on the verge of another financial crisis (as has been suggested by many prominent commentators – who have probably shorted the heck out of the stock market and are praying for further falls), or is this just a correction and normal service will resume once the panic and fear-mongering dies down? If you have picked the right investments, your answer should be ‘who cares?’ Put it this way, if you own shares in Commonwealth Bank do you think the bank is going to collapse at any time during this period of volatility? Or Telstra? Or Woolworths? Is this current crisis likely to put the entire population off food for life? Or stop us making phone calls? I don’t think so – and there’s a prediction you can rely on.