Navigating the financial landscape can be often daunting. As John Templeton noted, “There will be bear markets about twice every 10 years and recessions about twice every 10 or 12 years but nobody has been able to predict them reliably. So the best thing to do is to buy when shares are thoroughly depressed and that means when other people are selling.”
Reflecting on 2022 was pivotal, marked by global central banks raising interest rates, fuelling speculations of an impending recession or a soft landing in 2023.
Contrary to these predictions, 2023 witnessed a robust market performance, and the economy remained resilient despite the substantial rate hikes.
This surprising resilience begs several questions. Are investors already forecasting future rate cuts and economic expansion in asset prices?
Are businesses now more shielded from interest rate fluctuations due to financial sophistication that allows them to secure debt at lower rates?
Are the ongoing tensions in the Middle East, especially Iran’s proxy conflicts with Israel and Saudi Arabia, posing the risk of an escalation of tensions?
Is it possible that investors are underestimating geopolitical risks, including the ongoing conflict in Ukraine as the West seems to be divided in maintaining the proxy war?
Yemen’s Houthis, backed by Iran, continue to threaten vital trade routes. The Suez Canal accounts for approximately 12% of global trade, so more disruptions could have economic consequences.
It’s very challenging to predict at this stage. Even the Federal Reserve Board, staffed with more than 500 researchers, including more than 400 Ph.D. economists, failed to anticipate the inflation surge.
This underscores the inherent unpredictability of economic forecasting. However, this uncertainty doesn’t deter us from having a well-informed market perspective. Our focus remains on investing in the best companies and holding them until they are no longer the best.
Sir Isaac Newton’s words resonate here, “I can calculate the movement of the stars, but not the madness of men.”
The media’s self-interest is to capitalise on fear and try to persuade you to act every day. However, to succeed in the market as an investor you need three things to benefit from uncertainty: superior proposition, cash and the nerve to invest the cash when no one else is willing to.
When asset prices are low because of investors’ pessimism as they were during 2022, assets often have a strong potential to earn high prospective returns with minimal risk.
This is because most people assume the downtrends will continue into eternity, whereas the truth is the trends usually return to the mean over the long term. The longer the trend continues downward which was the case in 2022, the more likely the time to reverse usually becomes imminent.
As investors, we have to be comfortable with the fact that our world is an uncertain and unpredictable place. Intelligent investing usually requires us to recognise that market panics can present investors with an opportunity to profit, rather than simply following the herd.
We are pleased to announce that the YFS Intelligent Wealth Fund concluded the year with a 32.6% increase, surpassing our 20% annual growth target. Our ambition is to generate 20% per year. We’re mindful that transformation is not always evident at first glance—much like the caterpillar’s journey to becoming a butterfly. While the path to our goal won’t be linear, aiming for a 20% yearly return over 25 years will increase an investment 100-fold. This long-term, capital-allocating approach has proven effective if history is the guide.
Acknowledging our inability to predict the future, we remain adaptable, continually evolving our strategies. We invest in exceptional businesses led by visionary management, focusing on long-term success. Our commitment to prudent, forward-thinking investment remains unwavering, regardless of the unforeseen challenges that lie ahead.
YFS Intelligent Wealth Fund Performance vs. IA Global
Awet Ghirmay, Head of Investment Research
More information about our fund, the YFS Intelligent Wealth Fund can be found here: Hargreaves Lansdown or AJ Bell
Risk warnings: The value of investments and the income derived from them may fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action. All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs practice. Levels and bases of tax relief are subject to change. This blog is based on my own observations and opinions.
