Glenn Fairbairn Studios
Director/Private Client Adviser
Is it time to sell mining stocks? Maybe not…
14 Sep 2012
Whether it is fashion, music or even investment, following trends has always been part of life. This is often referred to as the ‘herd mentality’ which describes how people are influenced by their peers to adopt certain behaviours, follow trends, and/or purchase items.
Far too often, to their own detriment, investors get caught following the herd and make investment decisions based on market hype or economic trends. We don’t have to look too far into history to observe this type of investor behaviour.
Up until the last 12 months mining stocks were all the rage. Phenomenal share price growth and rising commodity prices coincided with unprecedented investor appetite for mining stocks. It is no coincidence that investor interest in this sector peaked at the top of the mining cycle.
Oh how times have changed. With global economic uncertainty and falling commodity prices, investor sentiment has now shifted from mining stocks. Mining heavyweights BHP and Rio Tinto have seen their share prices fall by between 20-30% over the past 12 months.
The “herd” is now firmly averse to investing in the mining sector and has shifted its appetite to sectors that have provided better performance in recent times, in particular health care and telecommunications.
But do you want to be a trend setter or a trend follower? With investment, the time when the rest of the market is fearful of a particular sector or company, may be the best time to look for opportunities.
At the height of the GFC banking stocks were avoided like the plague. However, if you were brave enough to avoid the herd and invested in bank shares when fear was at its highest level (Circa March 2009), you could have experienced a 70% return over the past 2 ½ years.
So with all the fear, uncertainty and expert opinion regarding the future of mining stocks, my message is “avoid the short term movements of the herd”. This is not the first mining boom, nor will it be the last.
The key to successful investment is to invest in quality assets that can withstand short term uncertainty. Trying to pick the best time to enter and exit a particular stock or sector is fraught with danger, as more often than not you will get the timing wrong.
If you see yourself following the herd, it may be worth turning around and going in the opposite direction. Being the contrarian can sometimes pay off.
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.