Have you ever pondered the fate of your investments? Renowned investor Bill Miller once shared his perspective, remarking, “When I am asked what I worry about in the market, the answer usually is ‘nothing.’ My worries won’t have any impact except to detract from something much more useful, which is trying to make good long-term investment decisions.” As we navigate the complexities of the investment landscape, worry will always be there, but let’s not let it control us.
To achieve stellar returns, you must adopt a contrarian view of the market and be right in your convictions to profit from them. Take Bitcoin, for example. In 2012, Bitcoin traded for less than $100, and many prominent investors dismissed it as a bubble. Even Charlie Munger, Warren Buffet’s right-hand man, recently called it “rat poison.” Yet, some contrarian investors profited handsomely. But can past successes like Bitcoin guarantee future performance, or are they merely strokes of luck or manifestations of the greater fool theory?
The world is currently mired in various conflicts – trade wars, technology wars, capital wars, geopolitical tensions, and even military conflicts in some regions. These global challenges heighten uncertainty. China and the US are pretty much involved in the last four types of wars and avoiding the latter. Iran’s Axis of Resistance across the Middle East to destabilise the region is testing the US patience with its proxy wars.
Admiral Sir Tony Radakin, chief of the defence staff, warns of an “extraordinarily dangerous moment” with war returning to Europe and escalating great power competition in the Indo-Pacific.
Closer to home, the prospect of prolonged high interest rates raises concerns for commercial building investors. With approximately $1.2 trillion of commercial mortgages set to mature within the next one or two years and low occupancy rates due to remote work, the failure to lower interest rates could have severe repercussions for commercial real estate companies and banks.
All our worries are priced in the market at least in the short term but the question is do investors have a clear view of the long term? If history is the guide, in times of high uncertainty, it is extremely tempting to stay in cash or invest in short-term government bonds to avoid losses and to attempt to return to the market when things return to normal. Historically, however, that strategy has not been very successful for investors, unless you need the cash in the short term.
The average annual return for a 100% bond portfolio from 1926 to 2019 was 5.3%, whereas a 100% stock portfolio generated an average return of 10.3%. In order to reap long-term benefits from your investments, it is better to focus on your long-term goals and ignore short-term market noises.
Also if we look back at data from 1928, being out of the market for just the best 30 trading days would have reduced your return by half. This is because the best and the worst trading days happen close together. On average recessions in the post-WWII era lasted for about 10 months. However, expansion has averaged five years.
After all, the secret is that it’s not timing the market but time in the market that matters. George Soros wisely said, “People base their actions not on reality but on their view of the world, and the two are not identical…since people’s decisions are not based on knowledge, outcomes are liable to diverge from expectations.” This highlights the importance of understanding not only the world as it is but also how others perceive it to make informed decisions.
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.
