Forecasting the future value of share markets is not a science and at best is plain luck if you get it right.

However History shows the share market outperforms other asset classes in the long term. So should I bother trying to predict the short term movement of the market in the belief this can be reliably predicted and therefore decision on when to be invested and when to sell are easy to make.

As Investment consultants Mercer reminds us, to be out of the growth markets (shares) can be expensive. Had you invested $100 in the Australian shares in 1984 and stayed invested in the best 50days of gains, your $100 would be worth $562. Had you missed the best 50 days, your money would be worth $94.

Whether or not you should be invested in shares be dependent on how much you have to invest, how long you can be invested for and what access to capital and income is required in the meantime.

So what about the current market?

Despite the recent pull back the market in recent weeks the economic outlook here in Australia remains robust.

Here are some of the key reasons why we think there is significant upside over the next 12 months; 

• Uncertainty in the international markets will fade over the next 12 months, which will restore investor confidence. The global economic growth picture, notably in Europe, will become much clearer once all the austerity measures have flushed through the system. This will also flow through to confidence in the recovery of the US markets. 
• An improvement in private consumption expenditure over the next 12 months on the back of solid employment growth, and personal income tax cuts from 1 July 2010. 
• An improvement in business investment, especially in the resources and resources-related sectors. 
• Much stronger growth in export volumes as our trading partner’s economic growth improves - the latest figures released by the RBA show the trade surplus was the highest for 14 months and the third highest on record at $1.645 billion. That was three times the market economists' forecast. 
• The recent reporting season confirms the earnings recovery is underway for the Australian market.

 The majority of the leading investment strategists also agree with the above view. In summary, these leading share market strategists are tipping the Australian share market or the ASX 200 to reach 5302 points by June 2011. If these forecasts play out as expected investors have at least 1000 points of upside to look forward to over the next 12 months, that’s over 24%. 

These same strategists are tipping the ASX200 to reach 5332 by December 2010, that’s over 25% of upside from current levels in less than 6 months. 

If the 12 month target forecast by Deutsche Bank of 6250 points is reached, the market will have moved 2050 points, or 49%!

Source: AFR 1 July 2010.

*December 2010 forecasts – no June 11 forecasts provided

Great opportunities arise when strong investor emotions, rather than fundamentals, drive the share market. You just need to ensure you are the investor who is looking to the fundamentals rather than the short term market noise. This means being invested and not trying to pick the tops and bottoms of the market.

“Profit from market folly rather than participate in it” Warren Buffett.

I believe investor emotions are driving the current fall in the market, rather than sound fundamentals. The fundamentals remain strong so the recent pull back in the market means you should review your long term investment goals to analyse how you can take advantage of the great opportunity the current pull back has created.

Geoff O’Neil

Director