News | Business
6 Jan 2025 15:12
NZCity News
NZCity CalculatorReturn to NZCity

  • Start Page
  • Personalise
  • Sport
  • Weather
  • Finance
  • Shopping
  • Jobs
  • Horoscopes
  • Lotto Results
  • Photo Gallery
  • Site Gallery
  • TVNow
  • Dating
  • SearchNZ
  • NZSearch
  • Crime.co.nz
  • RugbyLeague
  • Make Home
  • About NZCity
  • Contact NZCity
  • Your Privacy
  • Advertising
  • Login
  • Join for Free

  •   Home > News > Business

    The Scary Legacy of 1987

    A feature of the New Zealand share market is how many ordinary people won’t go near it. They simply won’t forget 1987. The New Zealand share market suffered bad press after the 1987 crash, not simply because of the spectacular failures of a number of property and investment companies but through the bad-mouthing of politicians like Jim Anderton. He coined the expression, "the wild west without a sheriff", suggesting that if governance rules had been stronger, investors might not have lost their shirts (and shorts).


    Investment Research Group
    Investment Research Group
    Other markets suffered heavy losses in 1987 and they recovered quickly, but New Zealand's wounded investors wallowed in misery and suffered more than most. The single biggest factor holding back investment in the New Zealand share market is that when we look back at the market index that existed in 1987, compared with the NZSX40 index that exists today (if you look hard for it), our share market is still some 15% below the level it peaked at in 1987.

    On long-term charts, this would translate into the worst share market performance on the planet in the past 50 years, and it weighs heavily on the minds of older investors. But experts contend that the market that existed in 1987 created an artificial spike in the index. This is because massive corporations that were the creation of clever accountants who produced mountains of paper wealth through investment holding vehicles dominated the top ten companies. Most of these went bust in the crash.

    This sort of company existed elsewhere in the world, but only in New Zealand did they so dominate the top of the index. When shares in a real industrial company crash because they are overvalued and the economy is heading for recession, those shares will eventually more than recover as the company trades its way back to health in the next upward cycle. The wealth fabrications that existed in 1987 couldn’t trade their way back to health because they weren’t traditional trading companies. Today, our index resembles that of other countries: Real companies producing real wealth.

    Since 1987, our share market has produced very respectable returns. If you compare the gross performance of the New Zealand share market with Australia and Wall Street during the 1990s, it comes out well. New Zealand companies paid healthy dividends; US companies did not.

    The bottom line is this: If you own property only, you are betting your future on a single asset class, and an illiquid one at that. If you keep you cash on term deposit, you have a dying asset, eaten up by inflation. The only solution is to invest in the NZ economy itself, and that can only be done through the sharemarket.

    Direct investment in shares is an important retirement strategy, but it has to be approached with the aid of professionals. A private share portfolio is free from capital gains tax and free also of most of the fees involved in investing through a fund. If you insist on doing it yourself, stick to absolute basics and aim for a bullet proof portfolio.

    In a long-term retirement portfolio, avoid all technology stocks. Invest only in companies that dominate their industry and are in recession proof industries. And don't invest in anything that flies (airlines), swims (fishing), grows (forests) or requires a high level of innovation to remain competitive (biotech company with a promised cure for dandruff).

    With this conservative portfolio, you will not produce the highest returns available from the market, but you should produce very respectable returns, ahead of other asset categories.

    © 2025 David McEwen, NZCity

     Other Business News
     06 Jan: Small businesses are hoping for a reprieve this year
     06 Jan: The Council of Trade Unions says the Government can't be surprised if workers head to Australia
     06 Jan: A warning the grass may not be greener for tradies on the other side of the Tasman
     05 Jan: Christchurch's Mayor anticipates keeping rates down, will likely be the city's biggest challenge this year
     05 Jan: After 50 years, the end seems nigh for the humble barcode, which is set to be gradually phased out, and replaced with a next-generation upgrade within two years
     04 Jan: Microsoft plans to invest around $US80 billion in the expansion of data centres for artificial intelligence (AI) during the current financial year
     04 Jan: Water Safety New Zealand says the country should be proud of a falling drowning rate
     Top Stories

    RUGBY RUGBY
    To the darts world championship final in London.. More...


    BUSINESS BUSINESS
    Small businesses are hoping for a reprieve this year More...



     Today's News

    Entertainment:
    Golden Globes 2025 winners list: Emilia Pérez leads film nominations, Shogun lands early TV wins 15:07

    Golf:
    Hideki Matsuyama has claimed a three shot win to open the 2025 calendar year on the PGA Tour 14:57

    Entertainment:
    Tom Holland plans to quit acting when he has children 14:44

    Living & Travel:
    Golden Globes red carpet: Cate Blanchett glows in gold as Wicked stars Ariana Grande and Cynthia Erivo arrive 14:27

    Entertainment:
    Golden Globes 2025 live: Jean Smart and Zoe Saldana claim first wins for Hacks and Emilia Pérez 14:27

    Law and Order:
    Worsening social conditions could be leading to an increase in courtroom assaults 14:17

    National:
    Is it important to read the explanatory labels next to artworks? We asked 5 experts 14:17

    Entertainment:
    Blake Lively's legal team have insisted "nothing" in Justin Baldoni's own lawsuit changes her complaint against him 14:14

    Law and Order:
    A man has been shot and robbed at a Fielding park while attempting to purchase a two-thousand dollar pair of shoes 14:07

    Health & Safety:
    An Auckland woman says she's starving to death, losing over 15 kilograms, because the hospital refuses to treat her 13:47


     News Search






    Power Search


    © 2025 New Zealand City Ltd