Post-It NotesIt's all so short-term when you write daily. I sometimes go back to newsletters from a year or more ago and, with the knowledge of hindsight, read in minute detail the reaction to overnight events and realise that we look too closely at the market. Much too closely, because, as always with investment in hindsight, there are only a few simple things you need to know each year, things that if only someone could write on a Post It Note and stick it on your screen on the first day of the investment year. All you needed to know this year (2021) for instance (as marvelously predicted at Christmas) was this:
The “New” year is as good a time as any to take a moment to look back and torment yourself with all those things you didn’t know but could have guessed that would have made investment so easy over the previous 12 months, simple things that would have taken all the stress out of it, saved an enormous amount of time and helped you to undeservedly, prematurely and gloriously make a lot of money without fuss. You don’t have to wait for Christmas to do this, you can do it any day of the year. You can do it now. Look back over the last 12 months and identify certain X-factors that you needed to know. I like to call them Post-It Notes, one-line instructions that we wish someone had stuck on our trading screen a year ago that would have simplified everything. Things like this: Or this: Or this: Or this: Or this: It's easy in hindsight, but not so easy ahead of time because of this one small stock market truth: "Anything that is expected is in the price and the only thing that moves a price is the unexpected" It is the Catch-22 of investment, you have to know the unknown, because that's the only thing that moves a share price, the unexpected. You can study the numbers, assess the PE's, yields, the fundamentals, but to make any money out of that you have to spot things that no-one else has spotted. This is how value investors purport to make their money, by spotting the discrepancies between what a stock is actually worth and the price that people not as clever as them are paying for it. But these days, with fundamental information now a commodity (you can get all the numbers and valuations from a hundred places) the "edge" from arbitraging the difference between value and price, the "edge" that the "Intelligent Investor" identified and the Intelligent Investor disciples have marketed ever since as their smarty-pants point of difference, has been arbitraged away. What they know is known, the "edge" is minuscule, so making money, more so than ever, relies on you guessing the unknown, not assessing fundamental value. (When the market goes to hell "value" becomes a useful reference point again but in a bull market it is so 1950s). So without an edge in value analysis, we have to look for insight - something that is not common knowledge. Every year there are a handful of these things that you needed to know that would have swept away all the bollocks, all the financial theory, all the research, all the complications, and all the endless blah blah blah we were bombarded with (we bombarded you with). Things that made investors money and despite what every financial adviser will tell you, it is never Asset Allocation, or Portfolio Optimisation, or lower fees. It is almost always a few simple events, fads and trends that moved prices. A few words that we shoulda coulda (didn’t) distill from the many thousands of unnecessary words that we read and wrote in their pursuit. I’ve always said there is no money in PEs or yields, there is money in sitting by a swimming pool and working out what nobody expects. On that basis, the best way to spend your EOFY is not reading reams of research but sitting by a pool with a gin and tonic and thinking up a few Post-it notes of your own because that’s where your money will be made or lost next year, having an opinion rather than following the crowds. So what about the year ahead? Your starting point should always be the themes that are running already. Continuation of the trend is the most likely outcome in the stock market and although the genius or gambler may foresee or fluke a change in trend, it's probably best you respect the current themes and not bet against them until proved otherwise. So start with the things that are expected and go from there. Here are a few obvious starters.
- Assume a bull market (until it ends).
- Residential property is going up - so housing-related stocks are low-risk come results.
- Interest rates will not rise significantly - so REITs and infrastructure and utilities should continue to roll along.
- Electric vehicles are coming - Copper and Lithium to trend up constantly.