VISUALISING A Livewire article that captured my interest. Chad Slater from Morphic Asset Management talking about visualisation – he starts with this: "Back in high school, lacking both high levels of coordination and physical size, I ended up picking cross country and middle-distance running as my sports. One of the coaches was particularly keen on "visualisation" as a technique ahead of races. Visualisation is a well-known sports psychology technique, where you think about how you'd feel at certain point, visualise your race in your head in advance; thinking through each part of it; living it in your "mind's eye." Over the years in my investing career I've found this technique particularly useful around big exogenous events, where it's easy to become part of the narrative and not see other paths. The starting point is to think of yourself talking to a friend in a year's time about an event you currently think is implausible. Importantly, try to think of what some of the pre-conditions that would be needed for that event to come true, which of course with humans' hindsight bias, would be "obvious". The article discusses what we would need for the ASX 200 to hit 9000. Currently 5991. You can read what Chad thinks, but we've had a crack at what we would need for 9000 and we've also had a crack at what we would need for 900. It's an interesting idea. Good for your objectivity: What you would need for 9000:
  • A bank sector re-rating – to glamour status. Impossible without it. The sector is such a huge part of our market. They would have to offer the reinstatement of dividends based on earnings, not capital raisings, and that means they would have to be based on profit growth. All of which might be tough – zero rates mean no margins. Could be a struggle.
  • Resources to go up – possible – it requires a high iron ore price which is based on global and mostly Chinese economic growth. A coal price recovery would help. Stable or rising metal prices also needed.
  • A recovered oil price. That requires solid growth in the global economy.
  • Bubbling consumer confidence spurring strong consumer spending.
  • That would require a solid housing market.
  • A much bigger technology sector – that's why the US market has performed and recently recovered. Maybe Afterpay would have to become the biggest stock in Australia – Paypal is already 60% bigger than CSL and BHP, so it's not impossible.
  • A perfect exit from coronavirus.
  • A vaccine maybe.
  • Confident containment if not.
  • Travel borders open.
  • Zero rates but not too negative.
  • Money printing to be endless but not dangerously Zimbabwean.
  • A healthy but not stagnant level of inflation.
  • All sprinkled with some irrational exuberance and a short memory.
  • No Black Swans.
What would we have to consider to visualise 900. Now we're talking...
  • US dollar finally cracks under the weight of money printing.
  • US bonds become a credit risk.
  • The US loses its ability to borrow or fund existing borrowing.
  • The US is effectively bust.
  • Social unrest beyond our wildest imagination breaks out in the US.
  • The Chinese currency becomes the de facto global currency peg.
  • Rates go universally, really negative.
  • The EU can't hold up its weaker Members. Lets them go.
  • Woody becomes President despite being a joke Presidential candidate. Appoints Buzz Lightyear as Vice President.
  • Buzz and Woody turn it all around.
Thanks again for the article Mr Slater.

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