Dollar cost averaging and market expectations from Dale Gillham

I would like to introduce a new guest contributor at Finance ViewPoint - Dale Gillham, who is chief analyst at share investment company - Wealth Within. Given his presence across a number of publications and media in Australia, I thought it would be worthwhile to get his views on various financial concepts and weekly perspective on what we can expect from the financial markets.

So here is his Weekly Market Report for the week ending March 7th 2008.:
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Dollar cost averaging seems to be a hot topic within the industry of late. For those of you who may not understand this concept, it basically means that you continue to buy more shares in companies that you already own as they fall away in price in order to achieve a lower average purchase price. Now I don’t know about you, but I struggle to understand why anyone would want to buy shares in an asset that is falling.

If you dollar cost averaged Centro and ABC Centres in the past 6 months you would most certainly be questioning whether this was wise given both that shares had already fallen significantly prior to the recent falls. I am sure those who employed the dollar cost averaging strategy to Telstra as it fell 62% over 6 years from $9.20 to $3.43 would still be regretting their decision as they could have made far more money in many other shares during this time.

In my opinion dollar cost averaging or buying shares as they fall away because they seem cheap is not smart investing for the simple reason that most investors do not know where the bottom is and to buy without knowing is speculating.

So what can we expect in the market?

Just when I thought our market was settling and would confirm a direction soon, it has once again behaved erratically, and fallen away over the past week. This erratic behaviour makes it very difficult to determine the short term moves in the market, although as I mentioned last week I believe the medium to longer term will be bullish. The only question that remains is when this will occur.

There is a high probability that the next bull-run will commence before the end of June and when it does it will produce some great gains in many top shares. In the short term we need to be patient as it is possible the market will pull back to the low of 5222 that occurred in January although there is a small possibility that it could also fall to around 4800 points. That said I believe the market will start to rise over the next one to two weeks, which if correct could be the start of the new bull-run. Again it pays to be patient because right now is the perfect time to ready yourself to enter the market when it does confirm a direction.