Speaking to the Nest Egg podcast team, senior trading coach at Learn To Trade Jeff Triganza called for calm in the wake of February’s stock market volatility. He said the plunge was a classic example of the stock market hot air balloon; what goes up must come up.
It's up to investors to keep their nerve and avoid making rash decisions to sell, he continued.
Jeff also spoke with the Nest Egg podcast team about:
1. The role of cryptocurrency in the fall;
2. The credit default swap risk that could trigger another GFC; and
3. Why he's surprised Aussie investors are still hanging onto their term deposits.
Thanks, Jeff, for sharing your insights with the Nest Egg podcast team!
You can stay up to date with what Jeff and Learn To Trade are up to here.
David Stratford: Good day, and welcome to the Nest Egg podcast. Here again I'm joined with Jeff Triganza from Learn To Trade. He's a senior trading coach. Jeff, welcome back.
Jeff Triganza: Nice to be here. Thank you very much.
David: I think there's been so much that's happened since you last came in in the markets, but I'm gonna let you do a lot of the talking on this one anyway. I think the biggest thing to highlight here is over the last month especially in that early Feb up until the end of Feb period we have seen some big changes in the market these days.
Jeff: The market's not as buoyant as it was before. I think people are getting a little bit nervous and rightly so. I'm a little bit nervous about the market. I think we're just about to go into quite a sizeable correction here.
David: Yeah. What do you think in terms of what has happened? Say for example when I came into work, obviously I'm across as many things investment related as I can be, but this was just mainstream media news. This was hit every single place, and every single man and his dog has heard about it. What I'm talking about is that correction, that one that was put through. If you can explain really what happened there because I only know the top line stuff.
Jeff: Yeah, absolutely. The media always tries to find a reason for things. The real reason is if you consider the market a little bit like a hot air balloon and it drifts upwards and then all of a sudden they turn off the heat. That's pretty much all that happened. The buying dried up, it all dried up at the same time, and the market fell. That's pretty much it. It's not worth getting concerned about. These things happen. Everything that goes up comes down.
David: It's amazing how you're standing here chilled out like you know ... you've seen this before, right?
Jeff: I've been through plenty of them.
David: And that's the thing. Everyone else wasn't. Even me, I was running around the office like, "What is going on", like the whole hell's about to break loose. But it really is the case of just hold on to your hats and just it's what the market does. Right?
Jeff: It's breathing. You think of the market like an animal, I guess. It's just like us. It breathes in, it breathes out. The funny thing is that Bitcoin's led this down. Bitcoin had its collapse first, and then the share market followed, which I think is very interesting.
David: There's so much money in that space.
Jeff: There's still a lot less money in cryptos than there is in US shares.
David: Correct, yeah.
Jeff: I'm just very, very surprised that it went that way around.
David: Since we're on the subject of Bitcoin and crypto, do you think crypto is something where because it has such a huge market cap compared to what it did even a year ago, do you think that now has an impact on the share market more than ever?
Jeff: Absolutely. Sophisticated investors are seeing it as another asset class. Ten years ago people might have a portion of their money in Aussie equities, a portion of their money in international equities. Now Bitcoin is becoming something like that. I guess most large, sizeable portfolios would have 5% or 10% of their money in cryptos.
David: Such a cool cat about this stuff. Just not bothered. It's great. A lot of people are, and I think the interesting thing about this, Jeff, is that we have a lot of listeners out there that wanna be prepared for when these things happen. Are there ways to prepare yourself for what is essentially is always uncertain? We don't know these things are coming until they happen a lot of the time, but there are signals that you can watch and see to check out.
Jeff: Absolutely. There are signals. There's two different ways of looking at the downsides in these markets. It's either A, do we wanna just protect ourselves or B, do we wanna profit from them. And there are two different strategies in terms of which way you wanna go. One of the easiest ways to protect against the downside is to use listed options on the ASX. But if you really wanted to actually take advantage of it, using derivatives like CFDs is a really good way of doing that.
David: So, this is something where just on the back of CFDs, these are gonna be something which are more short changed or at least short term investments that come in or is that something which someone can look at which is a way to blossom their portfolio a bit more?
Jeff: I guess in Australia we look at CFDs as very short term instruments, but overseas, particularly in the UK where they've been around for a lot longer, people use them more for hedging and more for trading. I've been known to hold positions for 18 months in certain things. If there's a big trend there, I would hang on to it. It's reasonably cheap and certainly cheaper than listed option to hedge with CFDs instead. But just a matter of taking a short position on the Australian shared market CFD.
David: Yeah, for sure. I think with that, too, is it one of those things where ... do people wait for potentially a bear market to come around? Are we about to finish up on that mad bull that's been running for a long time, one of the longest ones we've seen in quite a while? Has it steamed out? Has it ran out?
Jeff: Everyone has a different definition of when the bull market ends. I guess ultimately it doesn't really matter. For wealth creation you need to be invested because eventually share prices break the prior high. That's what they do.
David: I think probably one thing that happens is always that when ... because we've had a such a strong last year, I keep banging on about it, last year was strong. 2017 was a huge year for the bull. But people are probably actually having a bit of a sigh of relief that now it's maybe in a way having that correction or having a bit of a slowdown or even going into more of a bear cycle because that's a buying opportunity. This is something where before you're in a market which is extremely expensive, and that's something where if you wanna change your portfolio or mix things around or get involved in something new, it's more risk. Essentially there's more risk when something's more expensive, right?
Jeff: That's it. And the price to earnings ratios were at record levels October last year. They've come back a little bit now. They're still expensive, and I would expect that we're not even halfway through this bear market.
David: Yeah. I agree. A lot of the time I look at these daily news articles that come out across ... there's so many things that I read every day. The general consensus that I've seen is that people one minute they're talking about Trump with his tariffs and how that's gonna rally or how that's gonna crash or something like that, which is very unknown, volatile conversations from him alone. You can't really take that as your bread and butter. But then there's real substance behind this where we just look at what's happened before. You've seen cycles happen, come and go throughout your experience in the industry as well, but what would you say this is relative to at this stage? Is this something which is the same or similar to what you've seen before and what happened when that was around?
Jeff: They're all a little bit different. Sometimes we get the reactions that are really quite quick. 1992 was a nice quick one. It didn't last very long, and then we started to move back up again. Then you've got the 1920s one, which was the depression or had a different name but was that bad. That price came down and then went sideways for more than a decade. I think we're halfway in the middle of that. I think what we're seeing now is depressed prices and significantly less upside price action.
David: We're not seeing a GFC, though, by any means are we. It's not one of those.
Jeff: What is a GFC?
David: One of those moments where you look at the market and you think is there an actually crisis here? Is there so much money flying around and people being lent money which isn't gonna be paid back. The economy is in a strong position as we stand right now.
Jeff: Well, I would disagree with that. The credit default swaps was what caused the GFC last time, and the credit default swap market today is twice as big as it was then. So, we've got twice as much risk, if that was the risk. That's one.
Secondly, we've got a really interesting time with interest rates. Interest rates at the moment are at historical lows pretty much in every western country. And when we have a crisis the first thing the central banks do is cut rates. We can't do that in the states. We can't do that in the UK. We can't do that in Europe. Japan's had zero interest rates since 1988. What's gonna happen? They can't stimulate the economy by cutting rates. And Japan was the case study.
Japan did that in 1988. They got to zero, and they've been in pretty much recession ever since then. That's 30 years. It could happen.
David: Yeah. And I think that for us looking at this in a broader term and the longer term as well, there's no need to panic and there's no need to jump ship and sell everything or look at other things which are a little bit more safe. I think it's just about managing your risk expectation in the first place, right?
Jeff: Absolutely. Don't sell stuff. Selling stuff is silly. You sell when prices are going up not when prices are coming down.
David: That's what the market wants people to do though, isn't it.
Jeff: That's what causes the second wave down. The first wave happens, and that's the professional market. Then it stabilises, and then everyone starts reading the newspapers, and they start selling, and that's the second wave. This is a buying opportunity. We talk about dollar cost averaging, which is the most important maxim of the market is that you if you can continue to buy small amounts over a regular period, you'll get them as cheaper prices. If you have cash, now is a good time to start looking at putting it to work.
David: Yeah. And that's the conversation as well that we've seen quite a lot is where people have a lot of cash tied up, a lot of lazy cash, it's not doing a lot. But I think with these tremors that happen people then become, oh, you know what, I was probably in the right position not to do anything with it because interest rates are low. Might as well just stay something which is not gonna be anywhere a stock market or something which is volatile at the moment. Reality is if it's sitting there doing nothing it's literally not doing anything at all, and it's not helping you, right?
Jeff: Your investments need to at least keep pace with inflation because if they're not they're going backwards. The money that you've saved which is after tax dollars is going backwards if it's not keeping pace with inflation. We've seen term deposit rates at 2.5%, I think, 3%. They're not doing great. I would like to see people putting their money to work a little bit more effectively.
David: Yeah, for sure. What kind of tips or what kind of things do you think people should adapt to or change in their portfolio or at least monitor? Some people have a portfolio or they might have assets which are very long term things but they don't check them or they might not update them as often as you'd think. What can people do to stay ahead of the curve here?
Jeff: The number one thing to do right now with prices coming back a little bit is to do some rebalancing because you're not having the big capital gains tax hit because prices aren't as high as they were before. So, rebalance the portfolio. Put it more into a structure that you're comfortable with. And then you're not getting the big tax hit as well. Now's a good time to do that. The cream always rises, so just make sure that maybe your ratio of tiny little penny stocks to proper stocks is a little bit different to how it might've been when the bull market was raging.
David: Risk profiling is just one of those things where everyone is different. Everyone has a different appetite for it. And whether you're not be, you're gonna look at something which is really gonna be higher risk than other things. That's fine, but I think in every portfolio there should be an element of most things, and that really comes down to just diversification. Some people think the more diversified I am the more safe I am, which isn't the case. I think a lot of people are being told that through the media, through channels which necessarily don't really know what they're saying.
Jeff: Diversification as a concept is a strange one in finance, because we haven't really agreed on what it is. We certainly haven't agreed on how it's calculated. Warren Buffett, who most people would say is the greatest investor of all time, doesn't do it. He owns, I think it's five stocks? It's a ridiculously small amount of stocks. But having said that, he owns half of Coca-Cola. That's a nice position to be in, right?
The other thing that I just wanna mention that we have a very big advantage in Australia is that we have dividends. In America, they don't pay dividends because there's not tax advantage for it. To have a dividend fueled economy here is really good because once you've bought a stock specifically for the dividends, it doesn't matter what the value is. You're still getting the same yield.
David: And that's the thing as well, just with a lot of the time of our readers, it's about the income. It's about having income over growth, and I think growth is one thing where people who really wanna attribute that to their overall income can look at. It's a measurable thing that's obviously important, but general income and having that fixed dividend that comes through, you know when it's coming through each month or year or whenever it is. You can find stocks, you can find investment opportunities that give you quite a solid footing on those side of things, too.
Jeff: The nice thing about the dividend stocks is that we have the franking as well. Generally the stocks that are fully frank dividends are household names. We're talking about the big four banks, we're talking about Telstra, we're talking about Goodman Fielder. They're very good companies. They've been around ever since day one. Everyone uses them anyway. I think I read somewhere once that if you had a thousand dollars in the National Australia Bank on term deposit vs. a thousand dollars worth of National Australia shares, you'd be much further in front if you owned the shares rather than the term deposit. Right? That's a different way of looking at things.
David: Do you think this is gonna be the same going forward?
Jeff: Yeah, I can't see why not.
David: Yeah. I agree. And this is something. You speak to investors every day. I try and get in front of our audience as much as I can, but you are really helping people as much as possible. What kind of conversations come around in that space? What are people saying these days? What conversations are constantly coming up in your books?
Jeff: I'm surprised by how many people are still holding term deposits.
Jeff: Yeah. Almost every day I hear someone's got money in a term deposit. I'm like, "You know what? If you've got $40,000 in a term deposit, why don't you actually consider buying the shares in the bank instead?" Because you're gonna get a better return, and it's much more tax effective. That's number one.
Number two is I've found that people are a little bit more, I wouldn't say risky, they're more looking for yield. They're more looking for return, and people are putting more effort into it than they would've 10 years ago, which is nice. It's nice for me to sit there and for someone to come to me and show me something that I haven't seen for a change. Not when it's a third tier cryptocurrency. But when it's something interesting, I'm always gonna have a look at it.
David: Yeah, for sure. Term deposits are something which I think is a while back was a great opportunity to have a look at. I think looking at it today there's a lot more on the plate to actually look at instead. Basically, there's a lot more opportunity in the market today as probably there was 5, 10 years ago in the space there where your money was probably quite safe and cosy in a term deposit. Right?
Jeff: Back in the day, you could get 7.5%.
David: Oh yeah, it was crazy.
Jeff: But I think over every timeframe Aussie equities outperformed term deposits.
David: A hundred percent.
Jeff: If they're doing that over every single timeframe over the last 100 years, you have to rethink what you're doing.
David: When you look at that, term deposits is seen as like that safe haven, money's really safe and locked up there. But there is historic valley to this, and you're right. There's countless years where Aussie markets outperform. Why do you think people are more safeguarded toward something like a term deposit over a share in a bank or something like that?
Jeff: Because they're conditioned to. Because stock brokers talk in a language people don't understand, and it puts people off.
David: It's all about education, right?
Jeff: Of course it is.
David: And it's literally something which we always bang on about whenever we get in this room and have a podcast, but Nest Egg is constantly talking about this, too, but just how much education can outweigh what your general thoughts are. And it really does pay dividends to do it yourself, right?
Jeff: Well, this is it. For your listeners that are even at least a little bit computer literate to open up a spreadsheet and to work out the different over 30 years of an extra 2% in return is massive difference.
David: Yeah, that's huge. But then looking at that as a lifestyle, do you think people get sucked into having to monitor it as much as possible because they think term deposit is easy. I chuck it in there, it does its job.
Jeff: The bank calls me when it rolls over. Yeah. No, I get that. But you could do the same thing. If you trust your bank, and if you didn't trust your bank you wouldn't buy the term deposit from them in the first place, if you went to a stock broker and asked them to buy the shares in the bank, why would that be any different?
David: Yeah, true.
Jeff: You could have the dividends reinvested into more equities as well, which is great because it adds to the growth. It's a very moderate way of growing a portfolio. It's not risky. There's no leverage involved. You only really do the transaction once, and you're only paying the broker once. I think you'll find after about three or four years it's cheaper to do it that way as well. And the returns, at a guess, would have to be four times as high.
David: Yeah, for sure. That's interesting. It's interesting to get this feedback from you for me. I know we always talk about this before you get in the room. You've seen this before, you have the experience in the market. A lot of the people listening out there are vets in this thing as well and have been in the market for a long time. Do you think from what you've seen and from what's about to come going forward, is there any other tips that you think investors should really latch onto or even consider looking at these days?
Jeff: Absolutely. For the people who have seen this before, those of you who got out of your investments right after the last GFC and got back in shortly afterwards and saw that that was all at the same price and that all that you really did was put some money in your broker's account, consider that maybe riding out the storm might be the way to go. Companies that are good companies today will be good companies in 10 years time. If they have some sort of a market force that's pushing them forward, there's no reason for them to go bankrupt. We don't have very many companies that are listed in Australia go bankrupt anyway. And if you're only talking at the top end, I'd be very, very surprised if any of the big four banks or BHP went bankrupt in my lifetime.
David: And it's amazing because that's hard evidence, and they're the numbers. But it's all psychological. When something's dropping and you're losing money, you think oh, I've got to get out. But the fact is that's exactly what everyone else is doing at the same time, as well.
Jeff: Maybe that's why you reframe the thinking. If you're buying for the yield, it doesn't matter what the value is. I've spent this to get a 5% yield. It's now worth this, but I'm still getting this yield. It doesn't matter.
David: Yeah, that's interesting. It's good to see that. I think that's a wake up call as well for a lot of people out there. By all means, look, we're not a get rich quick community. This is a slow burning thing for everyone, but it's about protection and having that sense of protection and having that sense of security within your financial portfolio is huge. I think there's some things where there's opportunity, but at the same time tally that up with what you want out of your end goal lifestyle. That's what everyone's looking at at the moment is am I gonna live the lifestyle I want. But having that out there is probably a different thing when markets are going against you sometimes. Yeah.
Jeff: Yeah. If you're comfortable with your position today, there's no reason not to be comfortable. Just sit back and watch. Drink a martini. It's an entertaining thing to watch.
David: Yeah, absolutely. Good man. Jeff, once again, thanks for coming in. I really enjoy your insights and just an idea of what happens in the market space. Also as well, if you want to learn a bit more from what Jeff's discussing, you can follow the guys over at Lens Trade. You can also follow us for more news. Lens Trade work heavily with us over on nestegg.com.au, and also you can find us on our social media outlets such as Facebook, LinkedIn, and Twitter. I think that's all of them. Thanks again for tuning in. Make sure to catch up for us next time we're live, and have a good day.