***FINANCE TALK WARNING***
Australia’s sharemarket accounts for around 2% of global market capitalisation. Sounds insignificant, but the ASX is the 18th largest stock exchange in the world!
Us Aussies pack a mighty punch on the global stage!
The majority of the world’s listed shares are owned by institutional investors, such as banks and fund managers. The value of the underlying shares are driven mostly by supply & demand.
Generally speaking, when institutional investors are buying, major sharemarket indices rise, and when institutional investors are selling, major indices fall.
The profitability of the underlying company in a major index will have almost no impact on its share price.
It is the reason that some of the world’s biggest companies can be worth hundreds of billions, despite running at a loss.
Sharemarkets are therefore kind of like Ponzi schemes, whereby the intrinsic value of the asset can only be maintained where new investor funds keep rolling in!
Sorry.. I digress.
The point I’m trying to make here is that most of the major global indices tend to follow each other, as they are ultimately held by common institutional investors.
Check out our local major index, the ASX200 and the US’s major index, the S&P500, over the past 5 years.
S&P500
ASX200
You could say a lot about the smaller fluctuations, but you can’t argue about one thing:
When the S&P500 falls hard, the ASX200 falls harder!
The same is true of every prior major sharemarket correction.
Last week, we introduced BBUS into the The VCo Defensive 50. If you didn’t get the memo, read it here: https://thevirtuouscollective.com/uncategorized/to-get-you-to-the-other-side-were-adding-bbus-to-the-tuna-salad-wrap/
This week, for the exact same reasons, we are introducing BBOZ into the The VCo Defensive 50. BBOZ works similarly to BBUS, except it is inversely correlated to the ASX200.
Like BBUS, BBOZ is leveraged, and for this reason we are only exposing 4% of the portfolio to it.
Now, Defensive 50 investors will have 4% in BBUS and 4% in BBOZ.
This sandwich just got tastier!
If you are not currently invested in the The VCo Defensive 50, you really should consider making the change before it is too late!