As an investor, you should always ask yourself if you are doing the right thing, and learning from your mistakes. Whether fear and greed are controlling your decisions, or whether you are profiting from those that are letting their emotions get the better of them.

So, we find ourselves at an inflection point. The markets are already down, and a lot of the post-COVID bullmarket headliners have been pummeled. There are political wranglings afoot in the old communist block, and the spicy cough is still running roughshod over companies and economies across the world.

Global markets have also had a massive tailwind from artificially low interest rates since the GFC in 2008. They have had an artificial tailwind from the newest version of stimulus that was invented post—GFC, called ‘quantative easing’, which was effectively just printing money and buying financial assets.

The US has also had also had a big tailwind from Trump-ian economics, which was tax cuts for the rich, and industry. And the US markets shake the dog.

China has been belting along trying to keep their economy growing at a sustainable rate, but that’s not all roses. And now inflation, not surprisingly, has reared its ugly head. So interest rates must go up, otherwise we have another major problem.

So how bad can this get?

The chart above is the long term weekly of the All Ordinaries. The blue line is nothing special, just a line I drew up the guts. There is one thing important about that line though – the market has always fallen back to it, and below it.

So unless we are entering a ‘new paradigm’, and the long term chart starts a leg-up of growth that we haven’t seen since the ASX went online, then it’s probably fair to say that we are overvalued.

Equally, each time we come back to that line after running a fair bit higher than that point, the sell-off has gone much lower – more often than not, around another 15% to 20% below that line.

What it doesn’t say, is WHEN we might come back to that line, nor does it guarantee that it will at all.

There are quite a few things to consider.

Firstly, none of this current drama is unknown. I thought Russia had invaded the Ukraine a few years back, but apparently they were just annexing it for a while, whatever that means. We all knew about ultra-low interest rates and inflation. We certainly knew about Covid.

So none of this looks like a ‘GFC’ or ‘Covid-outbreak’ style ‘out of the blue’ type event.

Secondly, there is still a hell of a lot of money around. Professionals and funds have been killing it, and as Magellan would know, there is a lot of investor demand to chase growth.

There are also a lot of companies making a lot of money, and paying out dividends, and that money usually comes back into the market. Commodities have been strong, precious metals have been strong, property has been strong.

So there’s a bit of a cushion. Unlike the GFC, which came out of left field and where ‘bank’-ruptcies snowballed.

And thirdly, there is a global retail investing phenomenon. Seemingly everyone wants to get into shares. And crypto. And property. And trading options and CFDs and all sorts of high-risk stuff. People buying physical silver. Youtube channels, and fin-fluencers, and share opinion talked about on the news in the same space as the Kardashians.

This is both good and bad.

Of the 1.4m people now estimated to be buying shares online, half of them have never ever seen a sell-off. They joined after the Covid sell-off, and it’s all been gravy.

They have never endured the gut-wrenching lows of a 10% sell-off like this, let alone a 30% or 40% global market meltdown.

They’ve only known greed, not fear.

At least 25% of Australian online investors are using a cheap platform with questionable price data, where they barely even know the last traded price of the stocks they are holding. A very high percentage of them would still be hitting the refresh button, watching the market slide like ye-olde slide-show while the pros are all live-streaming the latest information.

Retail investors panic at the best of times. But with that many in the market, they create anomalies. They pushed Afterpay up to $170, and they can push things back through the floor.

Which is great if you’re betting against them.

So whether this is a test, or just a normal market correction, one thing is for certain. After this sell-off, the market won’t be as cool as it was when everything was going up and money was easy. The trading fin-fluencers will come back with a more modest tone, just like the crypto guys have now.

They’ll be a bit more cautious, and there’ll be less memes and more focus on profits – not just revenue.

2020 and 2021 were anomalies. The share market is always hard, and sometimes it’s just setting you up in a long term confidence scam. It doesn’t respect you or care for your feelings.

So if you’re going to do this properly you need a pro-platform and live-streaming pricing, otherwise you may as well go crawling back to managed funds.

Choose to trade with Marketech Focus. Because you respect money.

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