"The way to get started is to quit talking and begin doing" (Walt Disney)The 1st May already and as many countries around the world celebrate Labour Day, the markets continue to be something to celebrate also. With the exception of a small pull back in China, four positive months so far in 2019 as the bull market continues. Raw data being
MSCI World +2.8% +15.6%
S&P 500 +3.9% +17.5%
FTSE +2.8% +10.3%
Nikkei +5.0% +11.2%
SSE -0.4% +23.5%
MSCI EM +3.5% +16.6%
As for Forex, a very benign month in what is inherently a volatile sector , the US Dollar's performance against other major currencies as follows:
GBP +/- 0% -2.3%
EUR +0.1% +2.3%
JPY +0.6% +1.8%
AUD +0.6% -0.2%
CNY +0.3% -2.4%
So what does that tell us about 2019, should we be locking in the gains for the "inevitable" correction as the Bears and Doomsayers will be telling you, or holding and enjoying continued growth as 2019 continues to grow from strength to strength from the glass half full brigade.
Of course no one knows the answer to this. All we can do is take a look at factors which may make impact. One thing I do know is that focusing on the very short term with stock markets is never worthwhile. They are volatile but to illustrate their durability, despite the worst December since The Great Depression and Q4, 2018 being one of the worst in history, the 12 month return on the S&P is still over 11%. Try finding that in the bank
If the S&P's growth continues at the same pace for the remainder of 2019, then coincidently the annual return will exactly equal that of the market's most successful year ever, 1954. That year, the return was 52.5%. Even the most ardent bulls are unlikely to tell you that we will equal or surpass the market's 91 year record, of course possible but unlikely.
One indication of a strong economy is the levels of unemployment. With today being the day that worker's rights are remembered, looking at the statistics on the current state of employment, it all reads very positively and is a factor in the excellent run the markets have had this year.
Whilst looking at the countries in the world with the lowest levels of unemployment, I was mildly amused to see that the four countries listed with the lowest percentage are Thailand, Cambodia, Laos and Guernsey! Being a Channel Islander (albeit from the far more sophisticated island of Jersey :-)) living in South East Asia made me wonder about the relevance.
Looking at more developed economies, the numbers read well. The UK, US, Germany & Japan with current unemployment rates of 3.9%, 3.8%, 3.2% and 2.5% respectively and all at decade lows.
In the US, the last three years have seen unemployment remain below 5% year on year for the first time since the turn of the century. To find the prior period where there was a similar three year run you have to go back to 1967
One of my earlier monthly reports talked about population growth and therefore consumer growth and therefore stock market / portfolio growth. Coca Cola will sell more cans of coke next month than they did last. Employment leads to increase in consumption.
It's this demand by the consumer which has seen an increase in "Factory Cities" popping up for in places like Bangladesh and China
The largest of these "cities: employ 20,000 people. One of them, EUPA manufactures 25,000 Electrical appliances a day, not a week, a day. They only do so because there is a market to sell to ........
"The Opportunities that everyone cannot see are The Real Opportunities" (Jack Ma)So Quarter one of 2019 has now been and gone. Best performing first quarter in the US in a decade and with the exception of a small drop in the Nikkei, major markets posted their third positive month in a row...so all good...data being
MSCI World +0.7% +11.8%
S&P 500 +1.8% +13.0%
FTSE +2.0% +7.3%
Nikkei -0.8% +6.0%
SSE +5.1% +24.0%
MSCI EM +1.4% +12.7%
Fairly flat month for currencies with the Greenback edging its way ahead of most currencies as follows:
GBP +1.7% -2.3%
EUR +1.2% +2.2%
JPY -0.7% +1.2%
AUD +0.0% -0.7%
CNY +0.2% -2.4%
So the noticeable standout is China. A very simple passive play on the Shanghai exchange with $100k would have netted you a cool $24k profit so far this year, time to bank that I would say. The Emerging Markets return is one of the best with a 12.7% return, so it begs the question are Emerging Markets or Developed markets the best home for your money?
There's no doubt that potential for Growth exists in the Emerging Market space. I often talk about the consumer driving growth in companies which leads to growth in your investments and assets. According to MSCI - there are 23 countries which have "Developed Markets". The population of these countries combined is just under 1 billion which means that the other 6.6 billion live in countries with undeveloped markets.
However we must also consider that many of the companies which own global brands where that consumer growth sits are trading in Developed Markets. Companies like Unilever, Nestle, Coca Cola currently derive around 60% of their revenue from Emerging markets, this figure expected to increase to nearer 80% within the next 10 years. So we could state a case that these companies are Emerging Market stocks....in fact some Fund managers may use this to stabilise their offerings.
Risks in Emerging Markets are greater, generally more exposed to Geo Political events and volatile currencies. As with all investing it depends where you are in your cycle. Similar to clients looking for more fixed income as they approach retirement, your level of equity risk also needs to be managed according to your time horizons. Although everybody should have some exposure to the Emerging Markets, how much is an individual situation. But if you are young, capital growth focused and able to give your investments time you can afford to be overweight in this area. Over the last 5 years EM is where you will find the best returns
In that period, developed markets have made:
US - 52%
Japan - 40%
UK - 9%
Giving you an average of 34%
Looking at the world's two largest undeveloped markets of India and China (which also are home to one third of the world's population) we saw returns of:
India - 71%
China - 50%
Giving you an average of 61%. The China number also includes a market crash in June 2015 when in the year preceding, the Chinese market was up 250%....so any manager / advisor worth anything would have locked some of these gains in and given you a much better ROI than 50%
Yes, volatility is far more inherent in these markets but to reuse the quote by the great Charlie Munger in January's report using volatility as a measure of risk is "madness". You just need to make sure you have the right guidance when entering these choppy waters and you will sail out the other side happily.
So where was the best market for the last five years....no other than Jamaica. In five years the market is up 300%. Home to legendary athlete and all round cool customer Usain Bolt, one of the quirks of the Jamaican market is that is only opens for three & a half hours trading a day...but seems to work for them
So in closing yes Emerging Markets can be seen as risky but investing correctly in these areas will pay its rewards.......so in the words of another Jamaican legend, "Don't worry , about a thing, cause every little thing, gonna be alright.......
"A Goal without a Plan is just a wish" (Antoine De Saint - Exupery)So the month of February comes to an end, and as expected it followed January in the markets with all markets of interest being in positive territory for the month.
The results so far this year so underpin my comments that the dips / sell off at the end of last year do not reflect the fundamentals of the economy. Investors are starting to see sense now and are "back in the game"...raw data being (USD performance against.....)
MSCI World +3.1% +11.0%
S&P 500 +3.0% +11.0%
FTSE +1.5% +5.1%
Nikkei +2.4% +6.9%
SSE +13.1% +17.9%
MSCI EM +0.1% + 11.1%
So China was the biggest winner, with their market up a whopping 17.9% in the first two months of 2018. Yes its been a bumpy ride over there but the most populous country in the world and the world's second largest economy has bounced back from a dreadful 2018.
Currencies saw a mixed month for the USD. GBP is finally starting to claw its way back. Longer term, buying GBP at these very low rates is a good purchase in my opinion...raw data being
GBP -1.2% -4.0%
EUR +0.6% +1.0%
JPY +2.6% +1.9%
AUD +2.3% -0.7%
CNY -0.5% -2.6%
So well invested equity portfolios would have made you decent returns so far this year. All the "Greats" in investment history, Warren Buffet, Peter Lynch, Ben Graham etc have a very similar philosophy, buy well and hold. Good companies will come good, regardless of the storm that the market throws up from time to time.
Whilst we have to heed that advice and regular readers will indeed know that I often talk about this being the key to long term sustainable growth, of course a person's individual circumstances needs to be considered also. For working people with a 5 year plus investment horizon , having a well structured portfolio with an equity focus works. The general rule of thumb is as you get older and rely more on income from your investments, you shift from growth focused equities, into a more balanced approach and then into bonds / income producing.
There may also be cases where cash is required for a business, a property purchase etc and having equities may not work because no one can know what the value of those equities will be when you need the money.
The investment universe is huge. There are many ways to make money but just as there many ways to lose. Having a plan is key and seeking the right guidance to help you execute that plan so you can enjoy retirement free from any financial worries is what most people are aiming for.
Having a diversified portfolio is important when heading towards retirement as you rely on your investments to support your lifestyle. A balance of shares, bonds and property is important. If one asset class struggles you have the comfort of not having all your "eggs in one basket". That said being too diversified can impact on growth and be counter productive.
A couple of meetings with my clients allows me to establish what is the best path for them, how they can choose the correct plan to help them achieve their goals. There is not a one size fits all solution...
"Using volatility as a measure of risk is nuts. Risk to us is 1) the risk of permanent loss of capital 2) the risk of an inadequate return" (Charlie Munger)So the first month of 2019 is over. Regular readers will know that when it comes to the markets I hate predicting. Thats not to say though that sometimes the markets can be predictable......January 2019 was such a month. As I wrote about at the beginning of the month, the December and last quarter of 2018 performance was not underpinned by fundamentals which made good companies great value...I just hope you took advantage...the raw data being:
Jan & YTD
MSCI World +7.7%
S&P 500 +7.9%
MSCI EM +11.4%
So after a few months of negativity, we had a positive market all round. The Emerging Markets (predictably having suffered the largest drops in the emotion led sell off) was the biggest winner up a whopping 11.4% in just a single month.....and on the currencies, the USD performed as follows:
So the Greenback is giving a bit back , not that anyone should be overly concerned about that. The farce which is Brexit could still have an impact on the £ and the EUR though my thoughts are most outcomes have been priced in. The Aussie Dollar has had a somewhat volatile time, again just reinforcing the fact to have some spread here...
So after the worst December since 1931, we get the best January since 1987. Ok so there is a gap between these years but 1987 is still 32 years ago...so best January in 32 years is still something you didn't want to miss out on. All great investors / investment managers do not fear volatility and nor should you
Although all the December losses in the developed markets may not have been given back completely, over the last 50 years positive markets in January have generally preceded a positive February, with average monthly gains of 1.34%. Continue this upward trend and that "worst December since 1931" will soon be forgotten or perhaps celebrated by those who saw the value and bought.
Whenever markets fall they come back stronger. Growth is inherent to the world we live in. Its a quite startling fact that in 1987, the last time we had a better January, the population of the world hit 5 billion people for the first time. Today we are at 7.7 billion, a 44% increase since 1987 which I'm sure many of you remember like it was only yesterday.
While we all know this isn't always positive and environmental and socio economic issues increase with this level of population growth, Unilever have have another 2.7 billion people to sell Lynx deodorant to, Nestle 2.7 billion more people to sell Kit Kats to, Diageo .......bottles of Johnnie Walker, Philip Morris..... Marlborough cigarettes, McDonalds... Big Macs, Nike ..trainers.........I think you get the idea
This growth is illustrated when you look at the performance of the S&P 500,whatever period you take..
Short - Term - 3 years + 39%
Medium term - 5 years +51%
Long term - 10 years +227%
I am sure that your routine today is similar to last Friday and dare I say it will be similar in a years time, perhaps even three or even five years time. You're spending money, more money and buying what you need and what you want. What you need and what you want is provided by companies who are on the S&P 500
You are always going to get Doomsayers out there, frantically scratching around looking for the next trigger for the markets to collapse, but this shouldn't concern you. If you want to go put all your money into Gold, be my guest but a 10 year investment here would have returned you 39% - The same the S& P did in 3 years and 17% of the return
We live in a consumer driven society and as those consumer numbers grow and so should your portfolios......
I've found that when the markets are going down and you buy funds wisely, at some point in the future you will be happy You won't get there by reading, now is the time to buy. (Peter Lynch)So just as we were heading for a solid 2018 return, an off the cuff comment by Federal Reserve Chairman Jerome Powell at the beginning of October caused as sell off which ultimately saw Wall Street experience its worst December since The Great Depression and the worst year in a decade.
Moving forward, monthly updates will show MSCI World, S&P and MSCI Emerging markets, replacing Dow Jones, Nasdaq & Dax. I believe these performances to be more relevant to my clients and prospects and EM especially is an area I am very positive about for 2019 and the longer term.....so lets look at the data / damage:
Dow Jones -8.7% -5.6%
Nasdaq -9.5% -3.9%
FTSE -3.6% -12.5%
Nikkei -10.5% -12.1%
SSE -3.7% -24.6%
Dax -6.2% -18.3%
S&P 500 -10.1% -6.2%
MSCI World -7.7% -10.4%
MSCI EM -4.3% -18.5%
So there were few safe havens in 2018 although we have had a lot worse years...and on the currencies we saw an equally volatile time, again just emphasising the need to have diversification here, owning some of each major currency
GBP 0.0% +4.1%
EUR -1.5% +4.3%
JPY -3.5% -2.7%
AUD +3.8% +11.0%
CNY -1.1% +5.7%
So with the exception of the JPY, the greenback was up against all other major currencies for the year..
So the big question is what happens next? Of course nobody actually knows the answer to that question (and if anyone tells you they do, run a mile) . If I have said it once I will say it a thousand times, predicting the future is futile.
Markets are emotional places and this is one of the reasons they go up and down. The recent sell off was basically a result of the "discussions" between Powell and Trump. Whatever your opinion on Trump maybe no one can deny that his behaviour is more volatile than any other US President I can remember and this volatile behaviour feeds volatility in the stock market. His spat with Powell illustrating this.
The best managers and investors in the world are the ones who can separate their emotions from facts. Looking at facts and fundamentals, GDP in the US remains at 3%, the best in a decade and unemployment near 50 year lows. Corporate earnings also remain strong so the foundation is there for a strong economy and you should be taking advantage of these cheap share prices.
For those who look at patterns, the nearest example in recent history I could find was 1989, 1990 & 1991.
1989 was a terrific year (as was 2017), 1990 we saw a stumble, with the S&P experiencing losses almost identical to last year...and in 1991 we saw a 26% increase. I am sure we would all take that return on our hard earned cash over the next 12 months...or even half of that.
Whilst predicting what will happen doesn't hold much water for me, I do of course take note of Wall Street analysts and strategists who use their skills, algorithms etc to give an opinion on where the markets will be.
This is their job. An interesting article I read this morning said that not a single strategist of the major Wall Street firms thinks 2019 will finish lower than it started. So advice is buy.
Getting out of that short term mentality is difficult but it is what separates people like the great Peter Lynch from the average investor. As with his comments above, buying low and selling high makes you happy. Lynch's performance was second to none during his reign at Fidelity from 1977 to 1990 he averaged 29% annually. To put this in perspective not once did the S&P reach that figure. During his tenure, the S&P had three years where it fell, worth noting that on each of those occasions the fall was greater than it was in 2018.
So thats my New Year advice. Buy now, and buy well using sound Fund Managers. Although Lynch is no longer working, other excellent managers such as Terry Smith, Mike Lindsell and Giles Hargreaves are still there to make sure you get the most "bang for your buck"
Emerging Markets have great value also.
I sincerely wish you all a fantastic New Year. Whilst remaining healthy and happy are the most important, having a prosperous wealthy 2019 would not go amiss.....and with everything positioned how it it, there's no reason why this shouldn't be the case.......
I'll be in touch
"In the middle of every difficulty lies opportunity" (Albert Einstein")
So another month has been and gone and as we enter December, historically the month with the best performing markets, we reflect on November and saw some of those unjustified losses being clawed back.
The US still leads the way, with Brexit affecting both UK and European markets. One thing markets do not like is uncertainty and the debacle which has been the UK's exit from the European Union has been that for sure. China and Emerging Markets remain down though great value to be had there now
So raw data being:
Dow Jones +1.7% +3.3%
Nasdaq +0.3% +6.2%
FTSE -2.1% -9.2%
Nikkei +3.0% -1.8%
SSE -1.0% -21.7%
Dax -1.7% -12.9%
And on the currencies, a fairly flat month with the exception of the Australian Dollar which continues to claw its way back against the greenback.....USD results being
GBP +0.8% +4.1%
EUR +0.2% +5.8%
JPY +0.6% +0.8%
AUD -2.7% +6.9%
CNY -0.3% +6.9%
So does this market offer value now? Emerging Markets / China absolutely. China's economy has been affected by the trade war and although still un-resolved, the 21% fall in its market is an over reaction. November 11 in China is Singles Day. This year sales on Singles Day surpassed US$30 billion, taking in more in the first 10 minutes than Amazon PrimeDay in the US took all day...an economy in crisis..I don't think so
On the subject of Amazon, its 3rd quarter revenue was up US$13 billion when compared to Q3 in 2017, to put that into context a year later the retail giant is making an extra US$6 million an hour....another crisis at company level - you decide... The recent drop in the share price was purely profit taking and emotion and despite the recent falls, year to date the stock is still up 42% . Why? Because its a good company.
You don't need to be too clever or cunning to make good returns on investment. Buying good companies is the way to achieve sustainable long term growth. There is a place in every portfolio for alternatives, property, other assets uncorrelated to the stock market.....yes you must diversify for sure but buying good companies with good products or services that people continue to consume is the key. Have your bit of fun with bitcoin and the like (notice how many of these guys have gone quiet recently) but recognise it for what it is. Niche. Occasionally I have these niche opportunities that can make you the 100% ++ returns but of course are correlated to a higher risk and no more than 5% of your hard earned cash should be there.
A more passive play on the Nasdaq still made you over 6% this year but anyone with their money being managed properly should have made at least double that. Yet the consensus is that the market is in a bad place, why? CITI recently published an article titled "Reasons to be Thankful in a Dreadful Market" Whilst I disagree with the market being dreadful, for the half empty brigade out there these were the reasons cited
Long term growth and successful investments, as quoted by Warren Buffett is about "Time in , not Timing"...that said taking advantage of good timing is only going to benefit your portfolio and these markets are offering this now, especially in the Emerging Market space. So some profit taking in October because of some stretched valuations has caused some fear and talk of "dreadful market".....so to paraphrase Mr Buffett again on his philosophy which has made him the greatest investor ever, "Be fearful when others are greedy and greedy when other are fearful"
Get in touch to work out how we take the opportunity....
"The True Investor welcomes volatility.. a wildly fluctuating market means irrationally low prices will be periodically attached to solid businesses" (Warren Buffet)So during the month of October, a not unexpected sell off in the markets and more specifically tech has seen the largest one month slide of 2018, giving the Panic Monkeys and Doomsdayers a platform to make a lot of noise.
We did see a similar pull back to this in February and March, much of which was subsequently forgotten when at the end of September the Dow was still up 7%, S&P 8.4% and Nasdaq a whopping 16.6% year to date. The equity markets are volatile, this cannot be denied, its about whether, as wise Warren's comment above supports, you see this as a good or a bad thing......so raw data being:
Dow Jones -5.1% +1.6%
Nasdaq -9.2% +5.8%
FTSE -5.1% -7.3%
Nikkei -10.0% -4.6%
SSE -7.4% -21.0%
Dax -6.5% -11.4%
One factor which has caused the falls is the US interest rate rises, with The Fed and Don not seeing eye to eye. A consequence being the Greenback continuing to gain strength....gaining against all major currencies bar the Yen as follows:
GBP +1.4% +3.3%
EUR +2.3% +5.5%
JPY -0.8% +0.2%
AUD +1.6% +9.9%
CNY +1.5% +7.2%
So what should we do when we see a year's worth of gains wiped out in one month keep calm or panic? Each individual's situation is different. As you go along your investing life, your risk appetite changes. If you have a longer term horizon 5 years plus then these market falls are just a blip
Hopefully you will have already locked some gains in this year, especially if your time horizon is shorter. As I have said before selling a fund at a profit is easy, its just where to reinvest. It may be that those profits were moved away from the stock market into other areas. The key is the right holistic asset allocation which includes bonds, property, cash, some alternatives and having the right path and guidance to get you where you want to be.
So this recent "blip" (not crash) has basically happened because share valuations seemed a bit toppy especially in technology. With interest rate rises, cash became a little (and I do mean a little) more attractive (those towards the end of your investment journey) and the continuing US dollar strength and upcoming Mid terms added to the mix.
But fundamentals are still good. Earnings are still good. It's just in some cases the expectations had got a little ahead of themselves. Take Amazon as a case in point. It saw record profits (good) and a 29.7% increase in year on year revenue (good). But because the top-line number of US$56.6 billion missed its expectations by $500m (less than 1%) - the stock fell by 8% in a day. Markets are over emotional places at times. That said the stock still remains up over 40% year to date, why - because its a good business and growing
US GDP growth remains at a decade high 3%. Unemployment remains low - for me all of this tells me now is a time to buy not to sell.
As always there are going to be different views on the market, that is understandable and I can respect that. However one of my clients recently sent over a message from a competitor "predicting" a market crash. Being "bearish"...believing the markets will continue to fall is fine as long as this is backed up by proper rationale. The word "predicting" should not be in any Wealth Manager's vocabulary while he carries out his work. Like most people I have the occasional bet, maybe on a golf major or a weekend accumulator on the Premier League fixtures. This is where my predicting ends....and guess what I'm not that great at it...why because no one is. It is mostly a futile exercise aside form having a bit of fun on your Bet 365 app or at a roulette table
You are always going to to have the half full / half empty split in all walks of life and cynics will say I need to be half full as I get paid for assets under management. But at this time I genuinely can't see further than cheap growth stocks in the US and super cheap Asian share prices. I shall be taking advantage of this dip personally, as will my clients....and as long as he practices what he preaches...so will the greatest investor of all time......
I'm only rich because I know when I'm wrong. I basically have survived by recognising my mistakes" (George Soros)
Quarter 3 is over and as we head into the Quarter 4 - historically when markets perform best. With the exceptions of a small pull back in tech (after a great run this year) and the Dax, the gains continued during the month of September, raw data being:
Dow Jones +1.9% +7.0%
Nasdaq -0.8% +16.6%
FTSE +1.0% -2.3%
Nikkei +5.5% +6.0%
SSE +3.5% -14.7%
Dax -1.0% -5.2%
And on the currencies, the USD remains strong with the following movements....
GBP -0.6% +1.9%
EUR 0.0% +3.3%
JPY +2.7% +1.0%
AUD -0.5% +8.1%
CNY +0.6% +5.6%
So as they say in this part of the world, all a bit "Same Same". The US markets continue to do well, UK and Europe lagging behind and whilst understandably China picked up in September, 2018 has not been a good year for their markets...though perhaps presents some good buying opportunities.
Robust economic growth and upbeat corporate earnings in the US means the outlook remains positive.
Picking good companies and holding for the long term is an important part of successful investing. The greatest investor of all time, Warren Buffet is the epitome of this. His famous quotes such as "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price" and "it's time in the markets not timing" reflect his philosophy.
Whilst no one can argue that this works each person's circumstances are different. People may require income over capital growth, Warren's focus is on the latter. An individual's tax status needs to be considered - what works best in some jurisdictions may not work as well in others.
There's also those who look at trends, cycles and swear by this method of investing, so all about timing rather than time in. Choosing to buy a stock / fund / sector is only half of the equation for many, the other half is choosing when to sell (and then have an alternative option for those monies). Selling at profit is easy, its selling at a loss which is much more difficult. If you wouldn't buy a company today, why own it today? Being brave enough admit you are wrong and sell at a loss is difficult but will ultimately lead to having more success.
A passive approach to investing in the S&P 500 has historically yielded 10% per annum over the long term, through a mix of bull and bear markets. Yet the last quarter from 1 October to 31 December has shown average gain of 7.5% since World War 2. So three quarters of the gains are made in just one quarter of the time. Also in 82% of years where Quarter 3 was positive (which is was again this year), the fourth quarter has shown a positive return. History does have a habit of repeating itself and markets are emotional places so who is to say the same will not happen this year...the odds are in your favour.
A passive approach such as buying the S&P is a simple but effective way to obtain growth. However that growth can be increased with the right mix. Sometimes it is all about time in but sometimes its also about timing.
We all know that stocks can go down as well as up and those who favour the cyclical philosophy may argue that we are due an adjustment. Having other assets in non stock market correlated areas is also important, as is having managers who recognise opportunities away from long only equity.
Whilst no one can doubt Mr Buffet's credentials, not everyone has the time and certainly very few people have the means to make his philosophy work every time for them. Having your own target and finding a way to reach that through the right asset allocation is the key.....
"Price is what you pay , Value is what you get" (Benjamin Graham)So August draws to a close and we reach the last third of 2018. The US markets continue to be the place to make the most of your hard earned cash...as the data suggests:
Dow Jones +2.2% +5.0%
Nasdaq +5.7% +17.5%
FTSE -4.1% -3.3%
Nikkei +0.9% +0.4%
SSE -5.3% -17.6%
Dax -3.4% -4.3%
And as with the rampaging bull market in the States, the USD dollar continues to strengthen in most areas, the Aussie dollar being the stand out loser last month... stats being:
GBP +1.2% +2.5%
EUR +0.7% +3.3%
JP -0.8% -1.6%
AUD +3.2% +8.6%
CNY +0.3% +5.0%
So the month of August took us into the longest US bull market in history in terms of time , surpassing the run between October 1990 and March 2000 (The Great Expansion), although the S&P 500 gains remain almost 100% lower during this run when compared to it's predecessor (324% vs 418%)
The run of the 1990s was brought to an end by the dot com bubble. So are in in the same boat now? Valuations are high there's no denying that, but a bubble I don't think so....
Or even a shift , market correction? Bears would of course point out the stretched valuations. One commentator on CNBC recently referred to three factors which can cause a shift from a bull market to a bear market.
1. High valutions
2. Fall in Earnings (or earning expectations)
3. Raising Interest rate environment
Point 1 taken, Amazon which looks set to follow Apple in the next week and become the World's second public company to have a market cap of over US$1 Trillion trades at 159 times earnings for example.
Point 2 is not happening. Company's are increasing their bottom line. Growth is here especially amongst worldwide players. Occasionally, like with Facebook recently a share may fall simply because the market got carried away with its earning expectations, but Facebook is still growing, will have more users tomorrow than today...so this in itself tells a story
Point 3 can be argued on both sides. Yes we are in an apparent era of interest rate rises (of course with them being rock bottom for best part of a decade they could only go one way), but this is being managed by the Fed.
As one chap on CNBC put it recently the boxer doesn't get hurt when he knows where the punch is coming from. Also we have a long long way to go before earning money by putting it in the bank can come close to equities.
So for me we still have a good way to go. The Nasdaq is the stand out market again this year, up 17.5% already. Had you put US$50k into a tracker here shorty after the Financial crisis, that would be worth a cool $265k today. It's also worth noting that even if you had invested before the Financial crisis, you would still have trippled your money in just over 10 years.
There is no bubble in tech like there was in 2001. We live in a very different world, far more globally connected world than we did 17 years ago. Ironically this is due to tech.
I mentioned before that Amazon trades at 159 times earnings, back in 2001 the bubble was due to this type of valuation but the predicted growth was clearly over stated with no foundation. You may say that Amazon already has 50% of the US E- commerce retail market or you may (as I am sure Bezos would say) Amazon still has another 50% of the E commerce market to capture).
Where there is more opportunity is that E Commerce still only represents 13% of retail - so room. Perhaps with Amazon the potential danger is the government and regulators stepping in as it becomes too powerful and literally a "victim of its own success"
Although Facebook's valuation was bought down a peg or three recently, the growth potential still remains enormous and therefore valuations not silly. I had conversations with 2 or 3 people this week who (a bit like myself) are not huge fans of the platform but if you want to compete in business utilising it is essential. Especially in South East Asia, where in many businesses all of their advertising is through Facebook and the lion's share of their method of communication is on Messenger.
As I have spoke about on numerous occasions, its the developing economies driving this growth and thats why its realistic in 2018 unlike it was in 2001.
I'm not suggesting that you put all your spare cash in the Nasdaq right now and in 10 years time you will have the same (6x ) return on your money as you would have 10 years ago. You need to be a bit smarter, have it managed properly as there are opportunities on the short side as well.
Also geographically, the US which is home to most global players continues to appear to be rosy picture, but what about Europe, UK and most noticeably China, all of which are down this year. This is why having the right asset allocation is crucial.
The farce which is Brexit is affecting both Europe and the UK both in terms of their markets and currencies. And China is down 17.5% and in bear market territory.
There are always opportunities and there are always pitfalls when it comes to investing, having the right advice to navigate you through is key....
"Some people have called me lucky, but its strange because the more I practice, the luckier I get" (Gary Player).Another month has passed and after a rather uncertain first half of 2018, it would appear that confidence in the markets has returned with all the major indices in positive territory for the month of July. As has been the case for a while now, the US leading the way...the raw data being
Dow Jones +4.7% +2.8%
Nasdaq +2.1% +11.1%
FTSE +1.5% +0.8%
Nikkei +1.6% -0.4%
SSE +1.0% -13.0%
Dax +4.1% -0.9%
And on the currencies, with the exception of the Chinese Yuan ,which is being purposely devalued by the government to help its exporters in the market and counter the effects of the "trade war", other currencies remained stable with the USD strengthening only slightly versus most ....performing as follows...
GBP +0.7% +1.3%
EUR 0.0% +2.6%
JPY +1.3% -0.7%
AUD -0.3% +5.3%
CNY +2.9% +4.7%
As many of you will have seen, the US GDP results for the second quarter of 2018, by far exceeded expectations with an annualised 4.4% increase, when 2.2% was expected. This now means GDP is expected to rise by 3% for the year, a figure not reached since 2005.Unemployment is also very close to a 15 year low and at its lowest ever amongst certain demographics
Mr Trump is of course very quick to claim credit for all of this (despite before taking office once calling the published unemployment rate a "hoax"), his policies have reflected positively on the markets, the US economy is in good shape and its growth outlook rosy.
The world's second largest economy China however has been having a more difficult time. As reflected above, markets are down 13% year to date.
The perception that growth in the US is limited but abundant in China is one that many people hold, yet the above say otherwise.
That's not to say that China is not growing. People I speak to who have visited Shanghai recently talk about a "different world" in terms of its modernisation and the plans and infrastructure which is in place to support this growth seems to be well managed. I read recently that every five weeks, China is putting 9,000 electric buses on the road, thats the equivalent of the whole of London's fleet. One area China had to work on was the effect on the environment that its growth was having and they are dealing with it with huge investment in the likes of electric vehicles.
There are literally millions of ways to make money by investing, and there are also millions of ways to lose money. Luck can play a part but over the long term a small part. As I have said many times no one can predict the future and trying to do so is a futile exercise. Some people make money in property, some in the stock market, some entrepreneurial ventures, some in Crypto currency - and some people lose money in all of these.
When it comes to the stock market, it can be a very tricky place, we saw shares in Facebook fall over 20% in one day earlier this month, thats the risk involved.
These risks however are lessened significantly by using professionals - the landscape is complex and whilst I often speak about a somewhat simple inherent growth story (people in developing countries spending on the same as we do) , to make money and reduce your chance of losing money on a consistent basis, you use experts. . It's the processes, time, experience of good Wealth Managers which give them the edge when putting together portfolios. You can see Tenzing's offering here:
Anyone who held Facebook shares (which is a good investment in my opinion) and lost over 20% of their money last month was not unlucky, they were careless, even arrogant. Non professional investors should not be owning direct equity - looking at stock prices is a full time job so leave it to the experts.
As with all walks of life some people are better at things than others. Dedication and skill are certainly two traits that get you to the top and golf legend Gary Player has these in abundance. Stories go that in practice out of a bunker, he wouldn't stop until he had held that bunker shot three times in a row (not three times, three times in a row) ..so he then does it competition...lucky....I think not