As it turns out my crystal ball really works. Unfortunately, I only realise that now after going through all my articles written in 2013 when the crystal ball correctly predicted the lousy returns of the last 5 years. Of course, nobody wanted to believe this then, we had just enjoyed a decade of phenomenal returns with the average balanced fund delivering double digit returns year-in and year-out. Easy money and we were all in love with equities and investing, the bank was for fools.
Fast forward 6 years and the fools look like geniuses when even the most die-hard share investors are questioning their faith and trying to analyse what went wrong. The talking heads will blame it on politics and / or any other believable theory to convince themselves and their clients that they are in control. The idea that future returns are entirely unpredictable is too scary for any human to deal with, which is why my crystal ball is so valuable and I am very pleased to say my crystal ball is predicting much better returns for the next 5 years.
Naturally, the sceptics will doubt, they will want to know the specifics, they will want to wait for this year’s US election to be over and / or a Covid-19 vaccine and / or a Brexit agreement ect. They’ll fear Malema’s motormouth and SA’s unemployment rate or Eskom’s perilous debt mountain, the government wage bill and what the rand is likely to do over the next 12-months. Of course, the crystal ball doesn’t work that way. So, the sceptics will remain invested in the bank until their smug smiles turn to disappointment as equities once again prove that shares are the only asset class capable of generating real inflation beating growth through the full cycle.
Why am I so sure that my crystal ball will once again prove to be right? Very simply, because the prices are low. Can it really be that simple? Having started my career in 1995 as a bight-eyed investment novice I experienced 8 years of lousy returns stretching from 1995 – 2003 and then just when share investing became a swear word the market took off and delivered extraordinarily returns for the next decade until 2013 when it ended abruptly. What went wrong, Zuma or the Guptas?
The explanation for the lousy returns over the past 5-6 years is simply because prices got too high. The euphoria of the previous decade had driven prices to unsustainable levels effectively baking-in the lousy returns we have just endured, which then unfortunately culminated with the current temporary Covid19 lockdown correction, which has seen already low prices go even lower.
And that is the long and short of it, current low prices are indicative of good future returns, however there is a caveat, it is impossible to call the bottom of a market driven by irrational behaviour. Investors may need to tolerate some further downside pain before the low prices fix themselves. Patience and a cool rational head required.
Here is looking forward to a much better 2021 and beyond!
Mcomm, CFP®, HdipTax
T. 021-205 1133