A research paper recently released by Inalytics indicates that most fund managers fall into the same trap as individual investors when it comes to shares by selling winning investments and holding on to underperformers. It seems that the majority of fund managers are optimists, spending more time buying stocks rather than managing their positions to sell at the right time, which explains why the majority of fund managers fail to outperform the index. It is common for investors to sell winning stocks because they fear taking additional risks with stocks in which they have already made money, which also appears to ring true for fund managers. Given this, you have to ask why investors would pay to invest their money with these so called’ experts?  In my opinion, unless the fund managers learn how to time the market by selling losers to hang onto winners, they will continually under perform the index.

So what is happening on the market?

After reaching a new all time high of 6435.05 on 4 June, the market fell away 3.59% over the next 6 days to a low of 6200.10 on Wednesday this week. Yesterday the market rebounded strongly rising nearly 80 points and today the market is also trading up. You will remember that in my last report I suggested that with the current indecision in the market, anything is was possible right now and that All Ordinaries could rise up to trade above its recent highs. What we are seeing with the rise of yesterday and today is the market testing the recent all time high, which is very normal as markets will generally test both major highs and lows. The important thing is how the market unfolds over the next few days as this will confirm to me whether the pull back I have expecting is occurring or whether the bull market is still in place.  

Given my bias is that the market is moving into its yearly low, what I would expect to occur is that weakness will come back into out market either today or Monday and that the All Ordinaries Index will start to fall again. If the market continues to move up over the next week it will need to break strongly above the all time high of 6435.05 for me to change my opinion. If I am correct and the market falls away then we can expect the fall to last to between early and mid July and travel below 6000 points.