Is the New Zealand stock market going to crash?

Yes, with absolute certainty. Markets always rise and fall.

The question is not if. It’s when.

With that in mind, how do we as investors and savers approach our future?

Do we hold off on investing, get defensive and start stocking up on canned food?

Or do we invest anyways…overlooking the inevitable crash in lieu of the follow-up bull run?

That is the biggest question Kiwi investors have to be asking themselves right now…and we’d like to address it…but first, we need to mention the CEO poll on the government’s performance.

It’s called the Herald’s Mood of the Boardroom survey. CEOs from 150 of New Zealand’s largest companies offer their sentiment to how the government’s doing…and what it means for their business.

It’s a valuable window into the typically closed doors of the business world…and a great way to hear what New Zealand’s most-informed businesspeople are thinking.

Andrea Fox from the NZ Herald reports:

The chief concern of CEOs was uncertainty — “general uncertainty about the impact and direction of current Government policies”. The rest of the top five ranking factors also pointed to uncertainty: skills and labour shortages, regulation, employment law changes and transport infrastructure.

And this pessimistic attitude comes at a time of very high growth and revenues.

Curious. Why are New Zealand’s businesspeople feeling worried when the market couldn’t look better?

I reckon that most of them are savvy enough to recognise economics 101 — markets are cyclical.

Ups follow downs…and downs follow ups. It’s that easy.


A wild ride

Right now, it’s as if the NZX has been strapped to a chair with a million helium-filled balloons…

We’ve been floating higher and higher for ages…we’re feeling light-headed…a bit drowsy…and when we look down, the firm foundation of the earth just keeps moving farther and farther away.

Some people want to jump off and parachute to safety.

Others want to see where this ride ends up.

Most don’t know what to do.

Which group are you in?

Here at Money Morning New Zealand, we tend to fall in the more cautious category…or what investors call a ‘bearish stance’.

That means we believe the market is due for a reckoning…and eventually, we’ll all have to pay the piper.

Most of the mainstream would fall in the other category — that the market is resilient and a good bet.

And for the past decade or so, they’ve been right. We’ve been wrong.

We’ve been predicting rain while the sun just keeps shining.

But eventually, it will rain. And when that day comes, we’ll proudly say, ‘Told you so.’ [openx slug=inpost]


How to prepare

As an investor, you want to know where this is all going. What’s going to happen to your portfolio, your savings, your retirement?

Well…I wish could tell you.

All we can do is make an educated guess based on our research and modelling. Right now, it’s all pointing towards vulnerability and unsustainability.

But other investors, with just as much experience and resources could tell you the opposite is true.

Just Tuesday night, I caught up with a fellow publisher in the financial research field.

He’s smart and savvy…and knows his way around the NZX.

But he reckons that I’m wrong — that there are heaps of solid businesses on our exchange that will easily weather any sort of storm.

And he could be right.

I’ll be the first to tell you that I don’t know everything. Really, I don’t know much. But I try to connect the dots as best as I can…using my own economic know-how and financial experience.

So, when someone challenges my understanding of the market, I soak it in.

Because hopefully, it will give me and you a better picture of what’s going on…and where it’s all going.

We both agreed that the market is due for a correction.

And that investors, particularly property investors, could be vulnerable.

But we differed on how to prepare.

He suggested sticking with New Zealand’s biggest, most reputable companies. Think Spark, Air New Zealand, or Fletcher. To him, they stand the best chance of making it through the storm.

On the other hand, I believe New Zealand’s largest firms are strongly affected by the market. If investors start selling off, I reckon the fire sale could focus on the most commonly-held companies…while smaller, less-known stocks could avoid must of the ruckus.

Either way, it’s probably a good idea to take a bird’s-eye view of your portfolio now…and make sure you’re following investing best practices.

The 10 Commandments of Investing are a good place to start. Here’s Investopedias version with my interpretation beside:

  1. Thou Shalt Set Clear Goals — Know why and where you’re going with your portfolio.
  2. Thou Shalt Put Thy Financial House in Order — Deal with personal finances before investing.
  3. Thou Shalt Question Authority — Get educated and take professional advice cautiously.
  4. Thou Shalt not Follow Sheep — Fight herd mentality.
  5. Thou Shalt Be Humble — Don’t get overconfident when you strike a winner.
  6. Thou Shalt Be Patient — Don’t get jumpy when markets dip or bump.
  7. Thou Shalt Show Moderation — Don’t keep all your eggs in one basket.
  8. Thou Shalt not Ogle Thy Investment — A watched kettle never boils.
  9. Thou Shalt not Court or Spurn Risk — Moderate your risk.
  10. Thou Shalt not Make Heroes of Mere Men —Soros and Buffett make mistakes too.

Follow these commandments and you’ll be well on your way to a healthy and buoyant portfolio.

Happy investing.

Taylor Kee
Editor, Money Morning New Zealand