Andrew Page

There are few reasons to be optimistic about the general state of the global economy at present and at times like these it can be difficult to remain confident in the markets. As a long term income investor it can be easier to tolerate significant corrections, but they are certainly an unwelcome phenomenon.

This reporting season has seen some spectacular losses and the outlook for many companies is far from exciting. But on balance Australian companies actually shaped up better than you might think, and certainly much better than their overseas counterparts.

At a recent presentation at the ASX I was demonstrating the attractiveness of income investing in the share market. In attempting to justify my arguments I made use of a number of historical price charts that spanned a period of up to 20 years.

The most important thing you can do prior to becoming involved in the market is to ensure you have realistic expectations.

This reporting season has seen most companies reveal substantial drops in earnings, but despite this we have actually seen many stocks rise after the event.

These past few weeks have been marked by a raft of capital raisings and dividend cut backs as companies struggle to lower their debt burden and shore up their balance sheets.

In November of 2007, after five years of phenomenal growth, the Commonwealth Bank of Australia touched a new record high of $62.16. Of course since then the bank, which was the very definition of a solid blue chip company, has since dropped over 60%, last week returning to levels not seen since early 2003.

From an investor’s point of view, it would be dangerous to think that things will turn around quickly and rush to buy up stock purely because they are “cheap”.

It’s amazing how many novice traders are lured to the so called penny dreadful stocks

The outlook for 2009 is far from certain and there is considerable debate as to whether the market has bottomed, and whether we will see any substantial recovery within the next 12 months.