Strategy Thoughts: December 2015
A lost twelve months? Or, Risk Is Not a Knob
This month’s Strategy Thoughts spends no time discussing the subject that is currently dominating the investment media, the will the Fed or won’t the Fed raise interest rates this week. I believe this to be an irrelevance that will have little bearing on how markets behave over the coming weeks and months. Of far greater importance is that investors realise; just how much risk they may currently be taking (and that greater risk in no way guarantees higher returns), how much deterioration has already occurred across global markets, the extent of the deflationary pressures that continue grow and that ‘chasing yield’ has already proved dangerous and is likely to become more so.
Strategy Thoughts: November 2015
Cause, Effect, Risk and Deflation
This month’s Strategy Thoughts was originally going to be titled Cause, Effect and Risk, however, in the last few days I have studied the latest World Economic Outlook from the IMF and have become increasingly concerned regarding the global risk of DEFLATION. Interestingly I am not alone. The IMF’s chief economist just last week commented that he was worried about ‘deflation globally’. I have written about the risk of deflation many times over the years and it is clear that this risk has only grown, particularly given the extreme falls commodity markets have suffered.
Despite some selected larger equity markets, notably those large cap indices in the US, recovering all or nearly all of their August declines I continue to see the cracks that occurred in the same light that I did last month and that we are still only at the ‘end of the beginning’ of what will be the next global cyclical bear market.
Strategy Thoughts: October 2015
Was that it, or was it just the beginning?
Last month’s Strategy Thoughts finally got written, after a number of false starts as markets plunged, on the 25th August. This was almost exactly at the low point of the recent decline. At that time the MSCI world index was down a little over 20% from its late May peak, officially in bear market territory. Since then markets have recovered somewhat with the MSCI index rising about 10%. The question this raises is; was that it, or was it just the beginning?
In September of 2009 I paraphrased the great Winston Churchill by titling Strategy Conclusions “The Beginning of the End, or the End of the Beginning?” Then I was describing the new cyclical bull market that at the time was just six months old but had seen global markets rally substantially. I concluded that what had been enjoyed up until then was far from all I expected and that we were a long way from the beginning of the end. The situation now is almost the mirror image of what I described six years ago. A cyclical bear market began across various asset classes and regions of the world five or six months ago, and what has been seen to date, even including last month’s volatility, is likely just a beginning.
Now is the time to really focus upon capital preservation and avoid being tempted by the siren calls of TINA (there is no alternative). This will undoubtedly feel uncomfortable, but as the founder of investing giant Fidelity, Ed Johnson II, wrote years ago;
“When trading with the crowd exercise caution, when trading against the crowd be BOLD”
Now is the time for BOLDLY focussing upon capital preservation
Strategy Thoughts: September 2015
‘Healthy Correction’ or the early stages of a Bear Market?
For months I have continued to reiterate that preservation of capital should continue to be the single most important objective of all investors. Despite the seemingly easy money that could be made in some of the major equity markets, particularly in the US, I have consistently urged against chasing those gains. This continues to be my central message, and, despite what may happen over the next few days or weeks, during which time we will no doubt see how high a ‘dead cat’ will ‘bounce’, I continue to believe that yields should not be chased and risk should be avoided.
Strategy Thoughts: August 2015
Europe, China and Gold
For much of the last two months I have been travelling through Europe, the UK and Japan. Although this trip’s primary focus was golf it was certainly fascinating to watch the unravelling of the Chinese bubble and the repeated bouts of brinksmanship in Greece. It has also been interesting to witness the almost total give up now being displayed by the business media towards gold as the price has fallen almost 15% since mid May and now languishes at its lowest price in more than five years.
My overarching caution towards most investment assets has not altered since late May, in fact in many assets the action of the last two months has only served to reinforce that caution, however, gold may now present the best investment opportunity that has been seen for quite some time. In this month’s Strategy Thoughts I will review what has been happening in Greece, and compare it to previous Greek Exit scares, question what the bursting of the Chinese bubble might mean and also explore the investment case for gold.
Strategy Thoughts: June 2015
Time in, or Timing?
Earlier this month I received some literature from a local investment organisation urging me it was ‘time in not timing’ that matters in investment. Whilst this did not totally surprise me I was once again reminded how frequently history repeats itself, especially in investment markets, due to our collective inability to remember lessons that have been previously painfully learnt. I have attempted to counter the obsession for ‘time in’ twice over the last decade and a half, firstly as the turn in the millennium approached and then in 2006/7. It is fascinating, and understandable, that the doctrine for ‘time in’ or ‘buying and holding’ gets stronger and stronger the longer a bull market lasts. To some extent it is merely stating what has by then become obvious to everyone. Unfortunately, as I discussed last month, by the time something is obvious to everyone it is of very little investment value. I fear that the ‘time in’ urge this time will be as poorly ‘timed’ as it was on the last two occasions.
Strategy Thoughts: May 2015
Disappointment may seem an odd title, particularly given that many world equity indices are at or near all time highs, but this current elevation, in both equity markets and investor mood, needs to be put into some perspective. The MSCI All Country World Index is actually only 1 ½% above where it was back in late June of last year and has only risen at an annualised rate of slightly greater than 3% over the last seven years. The period a retail investor has been able to invest in the index directly via an ishare exchange traded fund. Obviously I have been selective in choosing the past high points in the index to make these calculations, they would look far more flattering if I measured returns from recent and long term lows (14% since last October and an annualised return of 17% from the March 2009 lows) but the problem is the vast majority of investors never get anything close to the best possible return, and many get something closer to the worst. In this month’s Strategy Thoughts I explore why this is and raise some possible solutions to this challenge. I also review the danger of elevated long term expectations and revisit the AT&T Apple substitution I discussed last month.
more from the full article
Strategy Thoughts: April 2015
What everyone already knows doesn’t help! The Wonder of Apple?
Over the last couple of weeks two news items have dominated the business pages, the first was the Fed’s removal of the word ‘patient’ from their latest policy statement. This resulted in a surge in the Dow and a plunge in the dollar over the short term. I read very little into this, whilst the media and market machinations and gyrations before and after each Fed utterance is entertaining, and to some extent understandable, I don’t believe it is in anyway helpful to investors. My concern continues to be that a deflationary disappointment, for both the Fed and investors, lies ahead and therefore believe that a cautious outlook continues to be warranted. The second news item that so captured the media recently was the inclusion of Apple in the elite of the Dow Jones Industrial Average. In and of itself I don’t think that this story tells one anything about where markets may go, however, the history of changes in the Dow does tell an investor about what really drives markets. In this month’s Strategy Thoughts I will explore the history of the Dow, look for some surprises and then share some longer term perspectives, particularly for Australian readers.
Strategy Thoughts: March 2015
“A feeling of contentment or self-satisfaction, especially when coupled
with an unawareness of danger, trouble, or controversy.”
This month’s Strategy Thoughts was originally going to be titled ‘European Complacency’ as over the last month I have been amazed at how much has been published and broadcast that seems to totally dismiss there even being a problem in Europe, at least not one that should trouble investors. I then focussed my attention on what is undoubtedly a growing problem in Europe, deflation, but with the recent release of the January CPI number in the US it became apparent that the pernicious problem of deflation was spreading. But again, as with the broader problems facing the EU, the threat of a deflationary problem was broadly dismissed by the media. This was another very worrying sign of complacency. Finally, particularly in the US, with markets still battling higher, faith in behaviours such as ‘buying and holding’ and ‘dollar cost averaging’ have regained the pre-eminence that they held back in the mid 2000’s along with a belief in the ‘science’ of modern portfolio theory and the efficiency of markets. The many shortcomings of all these beliefs and behaviours that were so profoundly and painfully exposed through the Global Financial Crisis have seemingly been forgotten given the relative calm of the last few years. This is yet another sign of deep and worrying complacency, and so I simply shortened this month’s title to ‘Complacency’.
Strategy Thoughts: February 2015
More Extrapolation and Overestimation!
Last month I reintroduced and re-explored the tendency that market commentators and economists have for underestimation of the magnitude and durability of a move in a market; that is until it becomes firmly established and accepted, at that point extrapolation and so overestimation become the dominant traits. I described at some length the history of this behaviour in the oil market and the futility of attempting to forecast a move in oil based upon supply and demand, this month I will update that analysis and question whether sufficient over estimation of how low oil could go has been seen in the price of oil to allow for a significant bottom. But first I will highlight some dangers in the, until very recently, still high flying US equity market and highlight the possibility of some meaningful reversals in currency markets. Needless to say I continue to believe that a heightened state of caution is still absolutely warranted.
Strategy Thoughts: January 2015
It will Fluctuate! (J P Morgan when asked what the stock market will do)
The New Year invariably begins with supposedly ‘expert’ forecasts for what the next twelve months may bring, however, the blame for so many forecasts appearing should not be totally placed upon the forecasters. It is important to remember a couple of J K Galbraith’s famous quotes. Firstly he said that the only function of economic forecasts was to make astrology look respectable, and then, perhaps more profoundly particularly at this time of year, he pointed out that economists forecast not because they know, but because they are asked. J P Morgan’s famous quote, which I have employed as this month’s title, is perhaps the most honest assessment anyone can give for what markets may do.
The stock market is a wonderful illustration, and always has been, of man’s inability to learn from experience. The same mistakes made by investors now were made at many other times over the past few centuries, what is perhaps most surprising is that when lessons have been cruelly and painfully learned, such as through the GFC when markets fell fifty to eighty percent in value, is that such vivid lessons can be so rapidly forgotten. Despite the terrible track record of economic forecasters the same questions about what the next twelve months may hold are asked of the same or similar people at this time of year.
In this month’s Strategy Thoughts I will review a number of such forecasts and attempt to see if there are in fact any insights that can be gleaned by looking at them in a slightly different way. I will also revisit a number of topics that I have raised over the last couple of months, namely; Europe, oil and gold and finally I will update the messages being provided by my STA model and the progress that is being made on the STA portfolio product.
Strategy Thoughts : November 2014
Economics versus Sentiment, and Looming Opportunities in Oil?
This month’s Strategy Thoughts is about three weeks late, this is partly due to my three weeks spent travelling around Europe, partly due to there being little change to my overall view and largely due to the time I have been investing in the Strategy Thoughts Allocation Model. The October edition of Strategy Thoughts prompted easily the most feedback of any edition to date and I have been delighted with the level of interest so many readers have in investing in such a disciplined, rules based, investment product. I will keep you all updated on progress in the STA product and if any other readers would like to learn more about the ideas discussed at length last month then please let me know.
Despite little having changed in my overall view towards equity markets over the last six or seven weeks there have been a couple of sharp sell offs in two commodity markets that potentially present constructive opportunities; oil and gold. I discuss the set up for both, from a ‘sentiment’ rather than ‘economic’ standpoint, this month. Also in this month’s edition I review the ‘value’ that perma bull professor Jeremy Siegel, of Wharton and ‘Stocks for the Long Run’ fame, has provided investors over the last decade given the heightened media coverage that his comments are once again garnering. Finally I update some of my observations from last month regarding ‘turns’ that have been seen and finish with some comments on developments with the STA product.
Strategy Thoughts: October 2014
Has a Turn been seen? And an introduction to the Strategy Thoughts allocation (STA) Model
Over the last month many of the forces that I have long feared have begun to manifest themselves across a broad array of markets. In this month’s Strategy Thoughts I highlight some of the reversals, or turns, that have come about as a result of this and raise the possibility that what has been seen to date is only the beginning of what could well be a very damaging period for many investors. It should be clear that there have been no significant changes in my overall global investment outlook.
More importantly this month I will continue to share the very encouraging research that has now become something of an obsession for me. The pursuit of a disciplined rule based approach to investing. My thinking has moved on enormously since last month’s Strategy Thoughts and the results have, to put it quite bluntly, simply blown me away. I have always believed that discipline was the single most important characteristic shared by all successful investors, and I have also always believed that overcoming our enormous psychological behavioural biases was the major challenge most investors faced. Over the last month the ‘Rules’ I outlined in the September edition have been modified, or developed, further and I have applied them to substantially more markets than last month. I have dropped the awkward SAA+TAA+Bonds moniker I had employed for the model and replaced it with the Strategy Thoughts Allocation (STA) model. I am confident that readers will be as impressed and surprised as I was by the results of the STA. I appreciated all the encouraging feedback last month and would certainly welcome more this month as I believe the STA goes a long way to providing the average investor with the potential for very healthy long term returns with substantially less volatility. Particularly when compared to traditional peer focussed, relative performance obsessed economic model driven fund management.
Strategy Thoughts: September 2014
The Beginning of a Disciplined Solution
For a number of months now I have been reiterating the following mantra:
I continue to believe that preservation of capital will be the most important investment goal, not chasing further gains or higher yields, for most investors over the coming months.
This continues to be my firmly held conviction, in spite of, and also because of, the continued buoyancy that has been displayed by a number of global equity markets.
As my outlook has not changed over the last month I have spent a considerable amount of time exploring the idea that a rules based solution to the investment conundrum, as I proposed in last month’s Strategy Thoughts, should be possible and would be of immense value. In this month’s Strategy Thoughts I outline where my thinking has gone in this pursuit and the results of these endeavours thus far.
Finally, for the golfers and gamblers amongst you I also I have a recommendation, driven by the findings of my book, ‘Bulls, Birdies, Bogeys and Bears’ on the upcoming Ryder Cup.
Strategy Thoughts: August 2014
Last month I included in my concluding remarks with the following; I continue to believe that preservation of capital will be the most important investment goal, not chasing further gains or higher yields, for most investors over the coming months.
This very much continues to summarise my views. Over the last month we have seen a hint of the danger of chasing yields with the Barclays high yield bond ETF having fallen 4% on fairly heavy volume wiping out half of its gains of the last twelve months. At the same time most equity markets have also slipped with some small cap indices down 10% for the month and the US dollar has continued to strengthen slightly. Whether these one month moves mark the end of the cyclical bull market in stocks only time will tell but they do highlight some of the risks that are out there and how quickly things can change.
In this month’s Strategy Thoughts I provide further perspective on the absolute necessity of discipline when it comes to investing, review some of the investing rules of investment greats past and present that can help provide that discipline and then provide some insights that should assist readers to tie some of these rules together and build a simple, disciplined and workable investment approach.
Strategy Thoughts: July 2014
Avoiding the irrelevant crutch
Investors must have an opinion or a view upon what markets are likely to do and why, particularly if they have any interest in having their investments perform and especially if they want to avoid ‘permanent loss of capital’. It is therefore interesting to explore what the majority of investors base their views and forecasts upon, and why. Further, it is really interesting to examine whether there is any evidence that what the majority base their forecasts upon actually provide any insight whatsoever as to what may happen to markets.
In this month’s Strategy Thoughts I pick up on one of the topics that I discussed last month and attempt to add further clarity as to just what it is that drives markets, how this can be identified and then how it can be employed over multiple time frames. Before this I examine the usefulness, or otherwise, of those things that the majority attempt to forecast and upon which they build their investment view, namely; economics, interest rates and earnings.
Strategy Thoughts: June 2014
Will an economic outlook help this time?
There is a growing complacency that all is well in the US economy thanks to the release of some slightly improved economic indicators. This growing complacency should be of great concern to investors as history has repeatedly shown that complacent comfort on the part of the ‘crowd’, particularly based upon economic reports and extrapolations, has always been sadly misplaced when it comes to investment markets.
In this month’s Strategy Thoughts I explore several of those historic periods of ‘complacent comfort on the part of the crowd’ and review the ‘value’ that an economic outlook may have provided through those times. I also review the behaviour of the widely followed precious metals, the ten year government bond yield and the Japanese equity market recently.
Strategy Thoughts: May 2014
Beware the correlation and causation delusions
The seventh Minor Zurich Axiom
I began last month’s Strategy thoughts with the major Zurich axiom illustrating the difference between confidence and optimism in investing. It continues to be the case that understanding and appreciating that difference is essential for all investors, but it is also the case that the behaviour highlighted by the seventh minor axiom, mistaking correlation for causation, has, and continues to be, one of the primary drivers of the high levels of optimism that continues to be present in many equity markets.
Over the last month markets for most assets, from gold to copper through to global equities, have traded in a broad sideways manner with the only minor exception being longer term interest rates falling slightly. None of this has done anything to dampen my level of concern, I continue to fear that the next important cyclical move across most markets will be a bear market that will do far more damage than the 10% ‘healthy correction’ that the majority of commentators seem to fear as being the ‘worst case scenario’.
Strategy Thoughts: April 2014
Optimism means expecting the best, but confidence means knowing how you will handle the worst. Never make a move if you are merely optimistic
The ninth major Zurich Axiom
I was intending to title this month’s Strategy Thoughts ‘No change, but what if I am wrong?’ and then I reread the classic of investing ‘The Zurich Axioms’ and thought that their ninth major axiom was highly appropriate in the current investment climate. Optimism is currently very high whilst at the same time little consideration is being given to how anyone will handle ‘the worst’. I have long feared the onset of ‘the worst’ in the form of another cyclical bear market such as most of the developed world’s markets suffered from 2000 to 2003 and 2007 to 2009. Some asset classes and a number of equity regions have been suffering cyclical bear markets for two years or more, however, a number of headline grabbing markets, particularly in the US, have so far not rolled over. This has led a growing number of commentators to describe the move upward since early 2009 as being merely the first stage of a new secular BULL market. Naturally I do not share that view, however, it is always a very healthy exercise when investing to consider the implications of one’s central view being wrong.
In this month’s Strategy Thoughts I review what such an outcome may imply and I also explore once again the level of ‘optimism’ that is invested in those markets that remain elevated and question how ‘confident’ those optimists should be. Finally I have included at the end of this month’s edition some extracts from the recent investor letter by the legendary value investor and Baupost hedge fund manager Seth Klarman.
Strategy Thoughts:March 2014
What Value, Value?
Despite my outlook not changing I have been struck by the enthusiasm and complacency of many commentators over the last month as markets have rallied. A summary of the views expressed, especially from US based commentators, is that given the majority do not see much capacity for price earnings multiple expansion then appreciation through the year as a whole will be more modest than last year and that markets are likely to ‘range trade’ for some time.
This sounds like a considered and measured view, one that may be taken as a source of comfort by many investors. Unfortunately, as is so often the case in investing, any such comfort is misplaced. Arguing that gains are likely to be less extravagant than those recorded in 2013 is almost stating the obvious. The US market had its best year in 2013 since the mid-nineties and one of its fifth or sixth best years since World War II. Stating that markets may be range bound also sounds considered whereas in fact it is just a simple extrapolation of what has been witnessed since October last year. Since then the Global Dow has risen or fallen only 3% and remains comfortably locked within that range. Sadly, simple extrapolation, whilst an easy and comfortable default position to slip into, is rarely helpful to investors.
What intrigued me about all the commentary I was reading was that no one appeared to be calling for price earnings multiple contraction with many continuing to claim that stock markets are fine places to be invested because valuations are fair or in some cases even cheap. This valuation ‘crutch’ is something I have attempted to knock out from under readers for several years and this month seems to be another sensible occasion to do some more ‘knocking’. My conclusion of this exercise will almost certainly be; firstly stocks are far from cheap, and secondly, and perhaps more importantly, valuation doesn’t tell investors anything over time frames that they are most interested in!
Strategy Thoughts:February 2014
Has a cyclical peak been seen?
On the 19th December, immediately after the US equity market had delivered a resoundingly positive response to Federal Reserve announcements regarding ‘tapering’ I distributed an interim report that firstly questioned whether the Federal Reserve really did ‘know’ what the economy was going to do, and secondly whether all that was then being interpreted as great news for the market had not in fact already been more than discounted by the market. On that day the Dow Jones Industrial Average closed up 360 points from its low point immediately after the tapering news was released. It then rallied for eight more trading sessions, amid ever more optimistic forecasts from economists and strategists, through to the final session of 2013. Since then all of those gains have been lost and the market, at the time of writing, sits at the same level as it was the day before the tapering news created such excitement and the risk that a new cyclical bear market has begun is high.
Strategy Thoughts: Interim Report for December 2013
Don’t rely on the Fed-Speculation continues to be dangerous!
Strategy Thoughts:December 2013
The ‘Dao’ of Capital – And the danger of speculation!
Understanding why any portfolio looks the way it does requires an appreciation of where markets lie over multiple time frames and requires a clear and articulated discipline. In this month’s Strategy Thoughts I outline what I believe is the most effective method of determining appropriate long term strategic asset allocations, how they should be managed and why chasing equity returns now is more akin to speculation than investment.
Strategy Thoughts: November 2013
Long Term Investing – The Opportunity in ‘Global Cooling’!
Over the last few weeks my views as to where markets are and what the coming months and years may hold have not changed. The recent stock market strength has almost entirely been born out of the supposed virtue of a weaker than expected economy and therefore the comfort that the Fed will not ‘taper’ anytime soon. This is a continuation of the ‘bad news is good news’ explanation that has accompanied much of the latter half of the current cyclical bull market and is an investment theme that I cannot urge investors strongly enough to ignore. The fact that it is seemingly gaining credibility, and an increasing following, almost daily should be seen as providing a warning, not a reason for increased comfort or complacency. Given that little has changed over the shorter term I have decided to revisit a far more important theme this month, long term investing, and hope to highlight what the majority will almost certainly see as a most controversial area for long term investing, Climate Change, but not warming, cooling!
Strategy Thoughts: October 2013
Has the ‘Wall of Worry’ already been climbed?
Over the last thirteen years I have referred to the old Wall Street adage that ‘Bull markets climb a wall of worry’ many times, it can provide a useful contrarian perspective. However, late in bull markets the expression becomes increasingly misused and that misuse ultimately, and highly frustratingly for the majority, only ends up proving the value of the adage when it is used correctly. It is now being severely misused, just as it was in the late nineties and again in late 2007. In this month’s Strategy Thoughts I will outline what I believe the old adage means and also how I think it should be used.
Not surprisingly I continue to conclude that globally risks remain very high and that a continued very cautious investment strategy is warranted.
Strategy Thoughts: September 2013
‘frustration’ and more questions, perhaps the slide has begun?
In this month’s Strategy Thoughts I will review just how frustrating the recent past has been and explore ways this frustration may get resolved. I will also examine a few of the most frequently heard questions regarding the current state of markets and finally I will highlight a, albeit early, sign that the current long running secular bear market is well past its midpoint and that the end may be insight, at least from a time standpoint if not from a price and valuation standpoint.
Strategy Thoughts-Interim Report: August 2013
This interim report should only be read by those Strategy Thoughts readers with an interest in Golf, The Gender Gap or Gambling. It concerns the upcoming female version of the Ryder Cup, the Solheim Cup.
Strategy Thoughts: August 2013
It’s never too early to think about a bottom!
I began last month’s Strategy Thoughts, ‘Don’t rely on central banks or even TINA!’, with comments about the worrying complacency that was emerging. The falls that many equity markets had suffered were amongst their most severe of the year, and yet there was an amazing calm amongst most investors. Apparently central bankers would always bail them out and anyway, what other alternatives were there to equities. Naturally these attitudes did not sit comfortably with me and I reiterated my extreme caution.
Over the last month that complacency seems to have been justified, most equity markets have risen a few percent and bond yields have also risen further. The unfortunate side effect of this is that complacency has intensified, as evidenced in the almost record low readings recorded recently in the CBOE volatility index (The VIX), and so the dangers to complacent investors have only increased. I remain as cautious, if not more so, than I was last month.
Strategy Thoughts: July 2013
Don’t rely on central banks or even TINA!
Over the last month many markets have suffered their most dramatic setbacks of the year. Severe falls have been seen in precious metals and selected emerging markets, bonds have also fallen sharply as yields have spiked and developed equity markets have also corrected. Amazingly these more turbulent times have been greeted with a high degree of calm, a complacent desire to ‘buy the dips’ and an almost religious belief that all is well in equity markets because 1) the Federal reserve won’t allow anything bad to happen, and 2) equities have to be bought because there is no alternative (TINA). All of this alarms me greatly.
Strategy Thoughts: June 2013
Are Equities Really Cheap?
If the broad media are to be believed then equities are the place to be invested, apparently we are currently still only in the early stages of a great (some even describe it as a secular) bull market. Regular readers will know that I do not believe that to be the case at all and have been urging extreme caution for more than the past year. Given that many equity markets have been rising over that period, and that some have recorded new recovery highs, it seems obvious that I have been wrong and in fact I have been receiving feedback from readers telling me just that. I appreciate all the comments that I receive and do attempt to reply as best I can; however, simply stating that I have been wrong because some markets have risen misses the point of what Strategy Thoughts has always been intended to do.
Strategy Thoughts: Interim Report:
In the May edition of Strategy Thoughts I mentioned that after the Socionomics Institute Mood Conference, that I addressed in Atlanta last month, their May edition of the “Socionomist” would feature a number of charts from my presentation. The Institute have kindly given me permission to distribute this months “Socionomist” to Strategy Thought subscribers. I have been a subscriber to the “Socionomist ” for many years, and highly recommend it.
Travel permitting the June edition of Strategy Thoughts will be distributed next week.
Strategy Thoughts: May 2013
The Social Mood Conference and New Bear Markets?
Last month I concluded Strategy thoughts with the following;
“For many months now I have not changed my view, now is a time for caution amid the increasingly optimistic media. Preservation of capital will be most important through the next cyclical downturn and the current environment is not unlike those seen at prior cyclical peaks. It was no surprise that the recent very brief sell off was seen as another opportunity to ‘buy the dips’. Don’t be surprised if a more serious sell off occurs and it is dismissed as just a ‘healthy correction’, all bear markets in their early stages are seen as this ‘oxymoron’.”
Since writing that I have spent the last four weeks in the United States. I played as much golf as I could but also addressed the Socionomic Institute’s Social Mood Conference in Atlanta. It was also clear over the lat month that a number of bear markets continued to unfold; including the acceleration down in gold and the continued unravelling of the previously golden Apple.
Strategy Thoughts: April 2013
How attitudes have changed since 2009!
Very little has changed over the last four weeks. Markets have not rolled over, as I have feared they would for many months now, but this does not reduce my level of anxiety, rather it heightens it. Now is not the time for comfortable complacency about the prospect for ever better returns, but that is what we are seeing to an ever increasing degree with each day that passes. It is vital that all investors recognise just how far attitudes and expectations have changed over the last four years.
Strategy Thoughts: March 2013
Last month I titled Strategy Thoughts ‘Comfortable Company or Anxious Isolation, which should an investor choose?’ I hope I gave a very clear indication that I strongly believed that the ‘comfort of company’ should be avoided at all costs and that ‘anxious isolation’ should be accepted as the only sensible medium term strategy. Since then it seems that the attraction of that ‘company’ has just grown too strong, and that the discomfort, or anxiety, associated with isolation has become too great. The result is that money is jumping into equity markets pushing them higher and fuelling ever higher expectations on the part of investors, all amid the clarion cry of this being a ‘liquidity driven market’. Despite this ever growing optimism, driven by liquidity arguments, now is not the time to become bullish.
Strategy Thoughts: February 2013
Comfortable Company or Anxious Isolation, Which should an investor choose?
I have frequently commented that ‘comfort and success rarely go hand in hand in investing’. This does not mean that one should always seek to do the opposite of what everyone else is doing, just to be uncomfortable and different for the sake of being different. Primarily this is because at no time will absolutely everyone else be doing the same thing, they can’t be, in any market for every buyer there always has to be a seller. However, at extremes of either optimism or pessimism it is vital that an investor recognise that extreme and be prepared to adopt a contrary, and by definition uncomfortable, position. By definition that will be uncomfortable, it will require going against whatever the then prevailing conventional wisdom may be and in a rising market will result in missed opportunities to pick up what the majority will be describing as ‘obvious’ and ‘easy’ returns. The reverse will be true as the troughs of bear markets approach and this discomfort will almost certainly endure for an extended period. This extended period will ‘test’ the resolve and intestinal fortitude of the contrarian that by then may be considering abandoning their ‘anxious isolation’ in favour of the alternative of ‘comfortable company’. This temptation to capitulate must be overcome if the investor is going to achieve true success, hence comfort and success not going hand in hand in investing.
Strategy Thoughts:January 2013
Don’t believe in ‘cause’ and ‘effect’ in ‘highly adaptive complex systems’
Through December most equity markets rallied, then slipped back before rallying at the end of the month and then finally sprinting higher on the back of the long awaited ‘fiscal cliff’ news. That sprint in the first trading days of 2013 pushed most markets to their highest levels of the prior twelve months although some, notably the major US indices, still lie below the highs they recorded earlier in 2012. Media coverage around the impending ‘fiscal cliff’ was incredible with CNBC regularly urging US legislators to ‘Rise Above’. It became a widely held view that should the legislators fail to ‘Rise Above’ and reach some sort of compromise agreement then the US would plunge back into recession and so markets would fall, and so, apparently, it was essential that an agreement was reached.
Strategy Thoughts:December 2012
Investors must know what they are paying for and Why one should be cautious!
Over the last month there has obviously been a lot of news, particularly in the US around the election and its result and the focus on the fiscal cliff negotiations that have followed. However, from an investor’s standpoint very little has changed.
Strategy Thoughts: November 2012
Confidence, Expectations and Markets!
Over the last month markets have broadly meandered sideways and in so doing they have continued to deliver the ‘frustration’ that I discussed at length three months ago. Bulls on both bonds and equities have had both some good days and some bad days, and the same has been true for bears, but on balance there has been no resolution as to whether the action of the last few months has been the cresting of a bear market rally or an extension of a now fairly aged cyclical bull market in equities.
Strategy Thoughts: October 2012
Can all the news be good for the market, whatever it is?
The most frequent feedback I have received over the last couple of months has been that markets have continued to rally, much to the frustration of the bears. However, it is worth digging below the surface of this observation.
Strategy Thoughts: September 2012
Don’t Chase Yield! And don’t believe in the ‘Music Man’!
Last month I likened the recent relative calm evidenced in investment markets as being the ‘eye of a storm’ and questioned how much longer the relatively benign ‘eye’ would linger over markets that had been frustrating to both bulls and bears. Well, the ‘eye’, and the frustration, has continued for at least another month. At the same time volatility measures remain at historically low levels implying that ‘fear’ is not currently the prevalent emotion amongst investors.
Strategy Thoughts: August 2012
Frustration, and the ‘eye’ of another storm!
In last month’s conclusion I wrote;
“The current cyclical decline, which has been seen in commodities as well as stock markets, probably has further to run. It will end with very depressed expectations, no sign of ‘hope’ from yet another summit, economists slashing forecasts for growth and a global recession probably imminent. By the time these things occur it will probably be the case that the recession (it will eventually be determined) had already started and with rampant gloom and dire forecasts abounding.”
Strategy Thoughts: July 2012
Should we Live in HOPE or Should we Sell The News?
This month’s Strategy Thoughts is the first edition to be written since I resigned from ANZ. For the last four and a half years I have been writing Strategy Thoughts for the ANZ Private Bank and its clients throughout Australia, New Zealand and Asia and prior to that, right back to the 2002 cyclical bear market trough, I wrote Strategy Thoughts for the New Zealand Private Bank.
Strategy Thoughts: June 2012
The ‘Slope’ gets slippery!
May 2012 will probably go down as a month that the majority of investors prefer to forget. It witnessed dramatic reversals in just about every asset class and came just as things seemed to be showing at least some signs of muddling through, just as so many had hoped, and it came when valuations were apparently supportive!