Myth #12: Tax should be the
key driver of investment
decisions
For many, the motivation to reduce tax is a key
investment driver. But there is no point
negatively gearing into an investment to get a
tax refund if it always makes a loss.
Myth #13: Experts can tell you
where the market is going
I have to be careful with this one! But the
reality is that no one has a perfect crystal ball.
And sometimes they are badly flawed. It is well
known that when the consensus of experts’
forecasts for key economic or investment
indicators are compared to actual outcomes
they are often out by a wide margin. Forecasts
for economic and investment indicators are
useful, but need to be treated with care. And
usually the grander the call – eg
prognostications of “new eras of permanent
prosperity” or calls for “great crashes ahead” –
the greater the need for scepticism as such
strong calls are invariably wrong.
Like everyone, market forecasters suffer from
numerous psychological biases and precise point
forecasts are conditional upon information
available when the forecast is made but need
adjustment as new facts come to light. If
forecasting the investment markets was so easy
then everyone would be rich and would have
stopped doing it. The key value in investment
experts’ analysis and forecasts is to get a handle
on all the issues surrounding an investment
market and to understand what the consensus
is. Experts are also useful in placing current
events in their historical context and
11
this can provide valuable insights for investors in terms
of the potential for the market going forward. This is far
more useful than simple forecasts as to where the ASX
200 will be in a year’s time.
Conclusion
The myths cited here might appear logical and
consistent with common sense but they all suffer often
fatal flaws, which can lead investors into making poor
decisions. As investment markets are invariably forward
looking , common sense logic often needs to be turned
on its head when it comes to investing.
Written by:
Dr Shane Oliver
Head of Investment Strategy and Chief Economist
AMP Capital
Important note: While every care has been taken in the
preparation of this article, AMP Capital Investors
Limited (ABN 59 001 777 591, AFSL 232497) and
AMP Capital Funds Management Limited (ABN 15
159 557 721, AFSL 426455) makes no representations or
warranties as to the accuracy or completeness of any
statement in it including, without limitation, any
forecasts. Past performance is not a reliable indicator of
future performance. This article has been prepared for
the purpose of providing general information, without
taking account of any particular investor’s objectives,
financial situation or needs. An investor should, before
making any investment decisions, consider the
appropriateness of the information in this article, and
seek professional advice, having regard to the investor’s
objectives, financial situation and needs. This article is
solely for the use of the party to whom it is provided.