Wednesday 3 February 2010
Our guest speaker was Oliver Ward who spoke on “Market Cycles and Other Investment Information”. Oliver was introduced by PP Rod McDougall.
Oliver works for RBS Morgans and trades every day on the stock market. Oliver started by telling us about stock market trends and how to spot them.
The market
is cyclical with bear markets followed by bull markets. These markets can last for many years. The average return from shares over a long period has been 7.75%. Usually the actual rate is well above or well below this figure. Oliver then listed the factors which affect the share market including interest rates, inflation, earnings and GDP.
Oliver advised us that inflation has been 4% on average over a long period and that GDP growth has been 3% on average. He advised us that the change in EPS (earnings per share) over 12 months was a very important indicator. The commodities boom which commenced in 2004 saw the stock market double between 2003 and 2007.
Oliver informed us that the average PER (price earnings ratio) over time has been 14 to 15 with a low of 6 to 8. If the current PER is low this may be a good indicator for a good run in the market. People have to ask themselves “What am I willing to pay for future earnings?”. As a guide ten times earnings is cheap and twenty times earnings is expensive.
Oliver advised us that many people analyse market fundamentals as part of their trading system. For example the following criteria yielded a list of thirteen shares to buy:
- Market capitalisation over $20M
- PER less than a certain figure
- Revenue growth over 20%
- Profit growth over 20%
- EPS growth over 20%
- Return on equity over 10%
- Rolling monthly value over $20M
Oliver stated that the market is nothing but people’s beliefs. He suggested a good basic strategy is to hold on to winners and to get rid of losers quickly. He also told us that any system to be used should be proven by back testing.Oliver suggested that it was important to write down the reason for making a trade including what is expected to occur and the worst case scenario. Periodic reviews can then be held asking the question “Am I holding this stock for the right reason?”.
In conclusion Oliver noted that earnings are starting to move up again and that it is probably a good time to buy shares however volatility is going to be a factor in the market for some time. Oliver was thanked by PE Peter Smith.
Oliver's PowerPoint presentation is online (click)