In the last week or so there has been a correction downwards of about 10%.
I hear various commentators sagely saying this was well overdue the market was ahead of the economic recovery etc., and those of us who saw paper losses should not be surprised.
This puzzles me greatly, but being new to this I am happy to be shown the error of my ways.
If I put my money in my cash account I think we were getting 3.5%, I suppose today we are getting 3.75% after the rise.
I want my money to be where it is earning the highest yield after tax, but take into account the different level of risk investing in a share rather than cash.
So therefore the acceptable return to me is if a share dividend grossed up for it's franking credits is greater than the cash rate of 3.75% plus the cost of a 1 year put option to protect the capital and make it a safe as cash. Then I am in front.
From this I am able to calculate from dividend forecasts a price at which the share is starting to become overpriced. Obviously this is a moveable feast as the interest rates go up it lowers the price at which the share becomes too expensive.
I update my spreadsheet daily and share prices I was monitoring were no where near being overpriced by that calculation.
So what is the rational for the correction being well overdue and expected.