Welcome to Finance and Fury Shares are at almost the same price as 2 years ago in Australia – What is happening?

1. Mid Dec 2016 – 5,580, Last week (3rd) – 5,667
2. Today – is it a great time to buy some shares or a warning sign of things to come?
   • Break down the health of the market, some reasons for the decline, and what the future may have in store

To start – clarify some things 3. When talking about Shares – Monolith of the market – ASX 300, but there are: * Financials make up a large chunk (35% approx.) - These have been declining + XXJ and XFJ = -11% over that time period = -3.6% decline in ASX * Telecommunications (TLS) – Much smaller percentage of the market + XTJ = -37% over that time period * Volatility – Shows the average movements in price from their average over a period of time + Higher levels of volatility can show that markets will rebound - Volatility is higher when markets have declined – Markets go down faster than they go up

Good time to buy? 1. Looking back through history – graphs to help communicate this 2. Since 1900 – Average return of 13.21% p.a. – Very long term average – Includes Divs – Accumulation index * 22 (19%) negative years – 12 years (-10-0%), 6 years (-20-10%), 3 years (-30-20%), 1 year (-40%) - GFC * 96 (81%) positive years – 19 years (0-10%), 48 years (10-20%), 17 years (20-30%), 3 years (30-40%), 7 years (40-50%), 1 year (50-60%), 2 years (60+) 3. Past 12 months - -5.1% - Pretty small decline, so is the market likely to have another negative year? 4. Back to back negative returns – happened 5 times throughout the last 118 years * 1915-1916 - -1.9%, -1.7% (-3.6% cumulative) – Gain of 427% before (13 positive years) * 1929-1930 – -3.6%, -28.1% (-30.7% cumulative) – Gain of 517% before (12 positive years) * 1951-1952 - -3.3%, -11.8% (-14.7% cumulative) – Gain of 285% before (9 positive years) * 1973-1974 - -23.3%, -26.9% (-44% cumulative) – Gain of 441% before (10 positive, 2 negative years) * 1981-1982 - -12.9%, -13.9% (-25% cumulative) – Gain of 584% before (6 positive years) 5. From 2009 to 2017 – 246% gain, including this year back to 234% 6. From 2012 to 2017 – 193% gain, (-11.4% in 2011) – Historically speaking we shouldn’t get a negative return 2 years in a row based around the trigger in gains

What is the health of the market? 1. Fundamentals - GDP * GDP growth is low – 2.8% this last measurement * 100% to GDP – Back to 2008 levels * Our economy isn’t going so well comparatively * High Corp tax rates and low productivity – a sign of poor performance 2. P/E - Market price today – 5720 – Leaves a PE of 15.04 = long-term average * Indicates that the markets are fairly priced * PE drops around – 2 metrics P & E * Market crashes – Prices go down * Earnings reductions – haven’t had on a massive scale – Bit below LT average 3. Dividend yields – currently sitting at 4.8% - fairly stable * Back below longer-term averages – 4.4% * Technically cheap – based on income yields

Why is it declining then? 1. Worries and lack of confidence * Political uncertainty – Election coming soon 2. Media stories – constant news cycles * The issues will be – Confidence! 3. World economy – We follow America in shocks * Sadly not on the way up over the past 2 years. We haven’t had the increase – so will we see a decrease? * Trump – Give the market confidence – Lower taxes, cutting regulations and making it easier for business * Riots (more protests) – Yellow vests – All through France, Brussels, Netherlands

Where it might be heading 1. Prices – While fundamentals look okay, the market isn’t rational * Emotions and fear – Can be rational (running from the guy with the knife), but loss aversion leads to irrational behaviour 2. Currently - 9 periods EMA is below the 21 periods EMA then you likely see the market go down further * Shares not quite oversold either

1. The market looks to be bottoming out soon – But doesn’t seem to be there just yet
   • However – Still a good time to buy for the long term (10+ years) – Break it up
2. Self-fulfilling prophecy – not the only one who can look at a chart to see this
3. Massive market crash predicted – Mathematicians claim unprecedented global disaster
   • Using analysis
   • More likely to happen that they are saying this
   • But the timeframes are 10+ years so who knows

Summary 1. Nobody can time the market or know when a crash will occur 2. Financials have dropped in prices a lot – off royal commission and payouts * Seem to be undervalued but updates may prove they will lose a lot of future profits + Earnings have been declining * Get active funds that work outside of top 20 – These show better long term returns + Mid cap funds have average annualised returns of about 13-17% over 10 years, ASX (inc div) – 8%

References: Australia Stock Market Valuations and Expected Future Returns https://www.gurufocus.com/global-market-valuation.php?country=AUS

Mathematicians claim ‘unprecedented’ global disaster is just years away https://www.news.com.au/finance/markets/world-markets/mathematicians-claim-unprecedented-global-disaster-is-just-years-away/news-story/5351f779ce0cce6a48776e86fc15f7f0

Australian Sharemarket - 118 Years of Historical Returns https://www.marketindex.com.au/sites/default/files/statistics/historical-returns-infographic-2017.pdf

The Australian Economy and Financial Markets https://www.rba.gov.au/chart-pack/pdf/chart-pack.pdf?v=2018-12-05-14-09-41