The following is a quote from a Bloomberg article titled “China’s Tech Stocks Enter Bear Market as Rally Leaders Punished.”

“The correction makes as little sense from a fundamental point of view as the way up,” said Mikio Kumada, a strategist at LGT Capital Partners Ltd. in Hong Kong.  “It’s just people selling it because it’s falling, just like before, it was people buying it because it’s rising”.

Such honesty, in other words, Mr. Kumada has no idea why the markets went up and certainly no idea why they went down.   I get the feeling he is not going to have a very long career as a strategist.

Investors are always looking for the reason why markets went up or why they went down.   If we can explain why the market went up or down then we feel in control.  Heaven forbid the market went up or down for no reason; that is just too scary to contemplate.

The truth be told, markets are completely irrational over the short-term driven by investor fear and greed.  Greed drives markets up well above the underlying intrinsic value and fear drives markets down below the underlying intrinsic value, as investors go from over-optimistic to over-pessimistic “overnight”.



However if you analyse industrial share returns over the long-term it is quite clear that returns are  driven by dividends and earnings, with changes in sentiment indicated as P/E in the above graph, only affecting short-term returns.

The returns enjoyed from 03/2009 – 06/2015 have been exceptional, driven by a re-rating, which has added 12.5% to the total return as euphoric investors have been prepare to pay a premium for industrial shares.

What might appear to be a long-term for investors i.e. 6 year’s, should rather be seen as a short-term up-cycle with the inevitable down-cycle looming.  Bottom-up stock picking based on fundamental value will differentiate the winners from losers; while the overall market is expected to deliver around +-10.4% per annum based on current dividends yields, earnings expectations and a de-rating over the next 10 years.


Mark Williams
Mcomm, CFP®, HdipTax
T. 021-851 3746

Crazy Investor Behaviour
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