In the bestselling book Homo Sapiens Yuval Harari theorized that the success of humankind can be directly ascribed to our ability to tells stories, which we could all believe in and collectively work towards, thus achieving as a common goal. This story telling skill is unfortunately our downfall when it comes to investing.

As investors we like a good story and we are prepared to pay-up for it and unfortunately when it comes to investing the most important determinant of future returns is the price you pay. The good story attracts the herd who then collectively bid-up the price to sky high levels in the hope that the good story will make them money.

Sadly, even if the good story unfolds as hoped, investors seldom generate the return’s they would have expected given the initial high purchase price. But my regular readers know this as I have been beating this drum Ad nauseam. Buy low sell high with the bad stories often providing the best buying opportunities as prices collapse reflecting the collective concerns and fears of the investment herd. The problem for the fearless contrarian investor is timing and patience.

Benjamin Graham father of value investing and Warren Buffets mentor warned investors of betting against the market when he stated that “the markets can remain irrational a lot longer than you can remain solvent”. It always amazes me how long a mispricing or bubble can build before it suddenly implodes, and the strange thing is how long these mispricing can go along unchallenged, which brings me to Government Bonds.

Global markets currently have $11.5 trillion in negative yielding government debt. Let me explain by using the German 10 yr. government bond to illustrate. Investors buying the bond are guaranteed a return of -0.25% per annum for the next 10 years or in plain English, your investment of $100 will be returned to you in 10 years as a payment of $97.5. You have effectively paid the German government $2.5 to hold your money for 10 years. This makes absolutely no sense!

Any rational investors who refuses to buy developed government debt at current levels is made to look like a fool as bond yields continue to fall implying even higher bond prices. For value investors the current cycle must feel like eternity as the herd continues to drive expensive asset prices higher whilst simultaneously disregarding unloved assets entirely. The dispersion between expensive assets and cheap assets continues to widen testing the resolve of even the most disciplined of value investors.


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


Storytelling can be misleading
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