How to Think About the Market Each Year

Time for this old chestnut.

It’s all so short-term when you write daily. I sometimes go back to reports 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, one-line instructions that, if written on a Post-it note and stuck on your screen on the first day of the investment year, would have made you a fortune with no effort at all.

 

In 2025 – Things Like:

• Sell everything when Trump starts talking about tariffs.
• Buy everything when Trump pauses tariffs.
• Buy AI and the Magnificent 7 – SEMI up 32%. (FANG only up 6%).
• Buy Asian Tech – DRGN up 29%. ASIA up 38%.
• Buy Korea – IKO up 69%.
• Buy Asia – IAA up 30%. IEM up 21%.
• Buy Gold – QAU, PMGOLD, NUGG, GOLD, GHLD – GDX up 148%. MNRS up 165%.
• Buy Silver – ETPMAG up 129%.
• Buy Platinum – ETPMPOT up 137%.
• Buy Copper – WIRE up 80%.
• Buy Uranium – ATOM up 59%. URNM up 32%.
• Buy Defence – DTEC up 65%. DFND up 56%. ARMR up 46%.
• Buy Resources – MVR up 39%. QRE up 32%.
• Get back into Lithium – ACDC up 58%.
• Buy International Banks – BNKS up 44%.
• Buy US Healthcare – CURE up 27%.
• Avoid going short – BBUS down 38%. BBOZ down 17%. SNAS down 34%.
• Avoid Private Credit – LEND down 16%.
• Avoid Crypto and Bitcoin – IBIT down 14%. VBTC down 14%. BTXX down 13%.
• Avoid the US dollar – YANK down 17%.
• Avoid Cybersecurity – BUGG down 11%.
• Avoid Australian Tech – ATEC down 12%.
• Switch out of the CBA into the other banks.
• Sell CSL – down 38%.
• Buy Telstra (best risk-reward, 21% gain in the market).

Simple things that would have taken all the stress out of it and allowed you to prematurely and gloriously make a lot of money without fuss.

You don’t have to wait for Christmas to do this, of course, but it’s as good a time as any to think about the themes and X-factors that could occur. The most obvious themes are those that are already in place; they don’t stop just because it’s a new year, but the real value comes from guessing things that are unexpected, because it is a rule of the stock market that:

“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 (guess) the unknown, because that’s the only thing that moves a share price – the unexpected. You can study the numbers, assess the PEs, yields, the fundamentals, but to make any money out of that, you have to spot things that no one else has spotted.

But these days, with fundamental information now a commodity (you can get all the numbers and valuations from a hundred places), the “edge” from information and analysis of the information has been arbitraged away by instant analysis and the algorithmic trading attached. The analysis “edge” is minuscule, so making money, more so than ever, relies on you guessing the unknown, not assessing fundamental value.

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 need to know to sweep 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 bombard you with).

It is almost always a few simple events, fads and trends that move prices.

On that basis, the best way to spend your holiday thinking time is not reading reams of research, but sitting by a pool with a gin and tonic and thinking up a few Post-it notes that no one else has thought of, 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.

And then make it up from there. I have a few debates:

• The switch from Banks to Resources in Australia – will that continue, pause, or reverse? Or will they both go up? Or down? This year taught me that there is an inverse correlation between banks and resources – one seems to fund the other. My guess is that it will reverse next year, with the Resources stocks peaking and the Banks finding support.
• Banks in Australia – at the right price, they are a buy. But they are still expensive. Ultimately, it’s an income sector. Buy and hold forever is what wealthy retirees do. If you’re not so wealthy but want to be more wealthy, you’ll probably need to do better.
• Interest rates – they are expected to go higher in Australia and lower in the US. The main risk is a delayed inflation spike in the US (from tariffs), which changes the focus back from jobs to inflation. We may have already seen the bottom of the US interest rate cycle.
• One possible X-Factor is that the Fed, under the new Fed Head, restructures its mandate and drives rates significantly lower than expected.
• AI trade – consolidation – correction – bust? The blind enthusiasm for AI will become slightly more sophisticated next year, with specific sectors of the AI revolution targeted on their merits rather than all sectors. There are a few elements: Semiconductors, Data Centre Infrastructure, AI hyperscalers, Energy, Services, REITs, and Networks. The “AI” narrative is not specific. We are already becoming more choosy, asking which stocks will be the winners? It’s not going to be all AI stocks or no AI stocks. It’s going to be some AI stocks.
• Australian Tech – opportunity – or dangerous? The ATEC ETF has been destroyed. Is that an opportunity? It’s a rubbish index, but some once-adored stocks have, with little change in fundamentals, been flattened. Buy the dip. Or ignore it? It is usually correlated to the NASDAQ – something’s gone wrong.

• Chinese stimulus – everyone’s talking about it, but is it real or imagined, and if it ever happens, will it be effective or impotent? Will it matter? Will it fuel resources, or land like an anti-climax?
• The Big One – this is the “End of Empire” scenario when the US lose control of the bond market and the US balance sheet implodes under the weight of $38 trillion worth of debt that the bond market cannot service. Could this be the year? Unlikely. But it is an X-Factor that will be all too obvious in hindsight after it happens.
• Trump – dies. What would that do? His actuaries give him only a 70% chance of surviving his Presidency – he is overweight, eats fast food, is highly stressed.
• The Trump Court Case rules tariffs are illegal. Could happen any day. What does that mean? Logically, it’s good. The reality – chaos and uncertainty.
• Uranium – forget the AI power stations, what about a global shift to nuclear acceptance? Resistance is political rather than practical. Practical should win. One day.
• Crypto – if you’ve read my articles, I think it’s a busted flush that had its colours stripped away this year by the Trump family’s exploitation of the faithful. It’s a confidence game. They destroyed it when they spat out all the mugs that had been swept up in Trump’s support of the space. Turns out his sons were just trying to make money. I heard a broker this week saying, “It is an asset class.” After this year, I beg to differ. This year’s crypto crash made it very clear that crypto, in any shape or form, has no intrinsic value. It is not the same as Gold.
• Gold – will it peak? Central Bank buying is a relentless support for the price. If the Big One ever happened, Gold could double again. China, Russia, Indonesia, India, and Korea seem set on building an East Asian bloc reserve currency of their own, which lacks ‘Trust’ unless backed by gold. Buying on that scale would take years. That means buying gold for years. What could puncture the gold price? Higher US rates and a higher US dollar would put a dent in it. Gold and Copper have been relentlessly supported this year by a falling US dollar (as has everything priced in US dollars). That could change.
• Copper – the perfect storm of a falling US dollar and stockpiling in the US ahead of tariffs coming in. Mine disruptions help – temporarily. What could kill the trade? The tariff court case, maybe (no tariffs on copper, but not all doom and gloom – see ASX Today). A rise in the US dollar (inflation spike). AI reality (don’t need so many data centres). The trend is your friend until it ends. Don’t get too clever. It hasn’t ended yet. But an event (high CPI number, tariff ruling or utterance)… could. Wait for it, don’t predict it.

Maybe you can think of a few more – feel free to send me your X-Factors for the year ahead. They have to fit on a Post-it note, be interesting and unexpected, but realistic.

Click here to email me at marcus@marcustoday.com.au.