ShareChat with David McEwen

Tuesday 30th August 2011

By David McEwen

In recent weeks there have been a series of dramatic falls in world share markets. However, in most cases such falls have been followed by equally strong recoveries, suggesting sentiment is at work much more so than concerns about corporate earnings.

Therefore, a knee-jerk fall in share prices offers buying opportunities, particularly of companies with resilient businesses, good cash flows and, most importantly, reliable dividends.

Choosing the right shares is important, however. Given the uncertainties in the global economy and world markets, gaining a decent yield is becoming a more attractive investment strategy than going for growth.

With recent dips in the market, there are some good quality shares in New Zealand offering 8% - 10% gross yields at present. If you can get double or triple the income being generated by a bank account, it pays to focus on the yield and ignore any unrealised losses from price movements for a while.

Share prices are falling because people are starting to ask themselves whether a repeat of the 2007-8 global financial crisis is looming. Since nobody can predict the future, investors shouldn't invest on a best or worst-case basis because extreme events are relatively rare. Anyway, wasn't the last GFC followed up a strong recovery in share prices? Stick with fundamentals and leave crystal ball gazing to others, I say.

Although US Federal Reserve chairman Ben Bernanke has ruled out a QEIII injection of fresh funds, it seems to me the Fed has little option but to keep on pumping up the fiscal balloon. This should be positive for markets in the near term but potentially bring more pain at some stage in the future. That is why a decent dividend yield is among the most valuable attributes of any share right now.

David produces the weekly McEwen Investment Report. www.mcewen.co.nz A free copy of his disclosure statement is available on request.

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