July 2010 edition
The share market: a step into the world of off-farm investment
Josh Jones - Equities Adviser
The past 18 months have been a roller coaster: cloaking financial investments with uncertainty and suspicion; increasing the perceived risk of the stock market, highlighting the flaws of managed funds and casting a shadow on America’s role in leading world markets. Funnily enough this has created amazing opportunity – opportunity farmers can exploit to initiate and increase off-farm investments. The time to fix the roof is when the rain stops and the sun has started shining on the Australian stock market, this time the grass is greener on our side of the fence.
For the most part, off-farm investing has been a dirty word. Aside from the handful of Incitec Pivot Shares and Wheat Board shares that farmers have been given – it is often viewed as something that deducts funds from an already starved cash flow and on the back of some very lean years; often it’s not a priority. But when you consider changing lifestyles and attitudes, the increased cost and focus of education and improved life expectancies - given the variation in seasonal conditions, any additional revenue streams are welcome. Preferably ones that aren’t dependant on the weather.
When you consider characteristics of shares and the positive outlook for the Australian Stock Market – shares become a preferred investment choice. The major advantage in investing in stocks is that they are tailored to the individual. That is, Farmer A may be in a high tax bracket or company tax bracket and therefore focused on shares with high capital growth – not dividends (income). Alternatively, Farmer B may rely on dividends for cash flow during ‘cash poor’ periods. Other structures include education funds, where $1,000 - $5,000 can be invested 10 to 15 years before it’s needed to take advantage of any longer term growth and realistically most farmers require a combination of the above. These will culminate in providing a pension in retirement, yet can be sold quickly if cash is required.
Regardless of one’s situation or need for investing, the next 12 to 24 months has great potential to be a period of growth, mimicking the stock market recovery in 2009. We find our market reduced to levels post the GFC (Global Financial Crisis) due to the feared level of European debt, the new resources rent tax and fears of growth in China slowing – all factors which we find slowly eroding and leaving strong fundamentals in the market. That is, blue chip stocks have the potential for returns above long term averages, while enjoying a conservative level of risk; providing opportunities that could be exploited.
While fluctuations in the stock market are a complicated combination of values, ethics, risk profiles and sentiment, they are merely a pattern. A pattern which evidently repeats. Just as the market recovered from the 1929 crash and the depression, survived two world wars, erased the damage from the 1987 crash and recovered from the ‘tech wreck’ in 2001, so it will again. Just as increased knowledge regarding animal husbandry and farming practices have increased profit margins – so has good quality share research and reliable stockbrokers.
As the days pass, the obstructions are clearing, making way for potential upside in both the short and long term. While this comes with associated volatility, managed correctly this can act as an effective, additional income stream – which can pay real dividends.
Disclaimer: This article may be of assistance to you but the State of Victoria and its employees do not guarantee that the publication is without flaw of any kind or is wholly appropriate for your particular purposes and therefore disclaims all liability for any error, loss or other consequence which may arise from you relying on any information in this publication.
