The NZ share market is considered to be overvalued after a strong rise over the past 18 months. In May some experts warned it is 10% over valued. A report out last week again says it is overvalued.
Some people are buying uninsurable earthquake damaged houses in Christchurch to rent out.
No risk free investments here, it seems.
Winds of up to 200 km per hour were recorded at Mt Hutt at the height of the blast on September 10, the highest in 40 years.
The Canterbury Nor’wester is a “Foehn” wind and commonly hits 60 Km and more. Hot and dry, it is sometimes known as the suicide wind - after 2 or 3 days it can simply drive people mad.
The September 10th storm flattened huge tracts of forestry in Canterbury. Some investors were reported to be only seven years away from retirement and seven years away from harvesting big blocks of pine trees – a 30 year investment. That’s a tough break for anyone.
They hope to sell the fallen trees for about 25% of the money they might have got in seven years time. Then they will probably replant the land, and try to sell it, since another 30 year time frame is beyond their life expectancy.
Experts said planting and maintaining a forest did not cost much, but it took about 30 years for pine trees to mature. In that time, storms and fire could destroy the trees, and wind insurance is not available.
Planting a hectare of forest costs about $1,500 and then costs about $4,000 per ha to maintain the trees for the first eight years. After that, the investors usually sit back and wait 22 more years until harvest.
Same Old Same Old
Forestry losses, buying over valued NZ shares, and earthquake damaged uninsurable houses are not exactly low risk. I hope all these investors have other investments too, as diversification is just so important. I hope they have liquid investments too, so they can easily get at cash in emergency.
Investing is a tough game, extremely unforgiving, and lack of diversification can really hurt.
So can seeking a high return - the higher the return the higher the risk – no exceptions.
“Some of us learn from other people’s mistakes and the rest of us have to be other people.” ― Zig Ziglar
NB. Or are a lot of Kiwi investors not investors at all, but gamblers instead ?
NZ Shares Overvalued
Twice this year I have heard that the NZ share market is over- valued - a "stretched market". For example, Fletcher Building is thought to be 30 per cent over valued. No surprise, a lot of investors getting excited about the profits Fletcher’s might make in rebuilding work in Christchurch. But now Fletcher Building shares are really expensive, and their competitors won’t be asleep either.
If a market is overvalued, take profit, or at least reduce your holdings. Most NZ investors would be wise to limit NZ shares to 10% of their total investments.
Obey the rules or get burnt
Reduce or avoid over valued markets
Plenty of NZ specific risks abound – earthquake, imported diseases
No place for rose coloured glasses
It takes a long time to make up big losses
If in doubt, buy (or sell) half
Buy when everyone is selling
Sell when everyone is buying
Invest offshore too, since NZ is tiny at 0.4% of world markets
Get experienced advice
Think twice about advice where the adviser or promoter gets commission or brokerage
Free advice is worth about what it costs
Do not kid yourself - picking shares is a tough game
Preferably buy liquid investments, as emergencies do occur
Do not allow fear or greed to influence your decisions
Lots of other “rules” too – more next week.
Supplied by Alan Clarke who is a financial and retirement adviser.
He is the author of a book entitled “Retire Richer” which is a practical guide for everyone age 25 to 85, and also writes regular articles on www.acfs.co.nz
Alan is an independent authorised financial adviser (AFA) and his disclosure statement is available on request and free of charge.