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Thursday, 21 December 2017
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The Plan For 2018


I’ve been doing salary reviews for 2017. It’s been a good year for our clients, our newsletter members and ourselves. Everyone’s happy and we are casually assuming a similar backdrop next year as this year, a similar level of growth next year as this year. Normal stuff.

But this is a cyclical business and I know that when the stock market turns down things will become harder for all of us. There will be less demand for advice, less enthusiasm for investment generally, and that will translate into less trade, less new clients, less funds under management and, if it happens, some not so fabulous salary reviews next year.

I remember going into a morning meeting in April 2000 at Bell Securities. It was the middle of the tech boom, although, as it turned, in hindsight, it was the top. There were signs. There always are. Just before the GFC the signs included three stockbrokers listing on the ASX at 200c (they all ended up below 50c) and another putting their name on football stadium. Surely the top!

In the tech boom the sign was Andrew Bell in that morning meeting in April 2000. He announced that we had had the best day of commission ever. I had personally written $11,000 of commission the day before. One of our number had the day before employed an assistant just to process his orders and was introducing him to us that morning.

Andrew told us to look around because, in the style of Top Gun, “It doesn’t get to look any better than this”.

In that morning meeting he unknowingly (knowingly?) called the top of the tech boom. It was as good as it ever got, and quite honestly, I’m not sure it has ever been that good/easy/lucrative in this industry ever again. Perhaps some of the Bitcoin beneficiaries might disagree.

That morning meeting taught me a catchphrase that I have used many times since, that “Normal is Great” because it’s only when things go bad that you appreciate how good normal was. At the moment we think that this bull market is normal, but it’s not, it’s great.

Take one look at this chart and tell me it isn't

The last thing I want to do is to end the year being bearish. So let’s not, let’s call it appreciative, of a good year for all of us.


The obvious narrative at the moment is to say that the most anticipated stock-market positive, Trump’s tax overhaul, has delivered a great rally in anticipation, but, as we have seen from the lack of momentum in the US market in the last couple of days, the market is beginning to wonder what there is to look forward to now. Good question. Let me make a couple of guesses:

  • This is Trump. Next will be a $1.5 trillion infrastructure package. Who knows what after that. Trump sees the stock market as a barometer of his popularity. He will do nothing to upset that.
  • Trump’s stooge, Jerome Powell, will be running the Federal Reserve next month. He will be a mixture of Yellen and Trump. Very careful but pro-growth. You can't ask for anything better.
  • The heady levels of the US stock market would look a lot more benign if you took out the US technology sector. In fact the S&P 500 would have slightly underperformed the ASX 200 in the last two fantastic years. Big tech majors are where the index performances come from. Without going into too much detail, there is just a chance that this is justified on earnings. Apple is on a P/E ratio of 15 times for instance. This is not a boom this is simply some very large companies gorging on their transition from US majors to global brands. It may be that the market is not expensive, its just that some very large technology companies have (justifiably) grown enormously.
  • The next results season both here and in the US, with a few sectors aside (retail?), will be reporting continued profits growth against the backdrop of a recovering US economy, full employment and a very accommodative central bank. Its been a good six months for most companies and that will show up in results next year.
  • Europe is also on the mend, and although the ECB is not prepared to declare it yet, their continued quantitative easing and cautious policy mindset, is probably too accommodating, and will continue to unnaturally support stock markets.
  • Brexit will continue to progress. For all the media’s predictable focus on the bad bits, it is progressing well, and you can tell that from the British pound. Here is the chart. It has been in uptrend all year despite all the shenanigans. I expect that to continue and have bought JHG in our SMA as a play on Brexit success, a higher British pound and a solid UK economic improvement.


In the end the one thing that will upset the financial markets and impact next year’s salary reviews, is the herd. When the herd turns it turns and it can do so without planning or logic. It could happen for the most subtle of reasons, or the most obvious, so let us not sit complacently, we all have to recognise that we are in the hands of an animal and are not driven by logic or science. All we can do is watch for it and react to it.

So my game plan going into next year is to take Kerr Nielsen’s advice and “run the market to the last minute”, it is our professional responsibility. Sell early and you can miss an infinite upside. Sell when the top has started and you can control how much downside you take. "But what if it crashes?" I hear you ask. The market very rarely gaps down without warning. We just have to hope we are attuned to the signs and do something about the sell off before it turns into mainstream panic.

So we will manage the risk by turning our screens on every day and making decisions based on all the things that happen in fact, rather than making decisions on all the things that some headline grabbing smartarse, who cannot possibly know, predicts.

It’s a bit trite, but your best bet is to stay invested, keep taking risk and not worry about predicting the top until it starts. And when it does I can guarantee you’ll be reading about it in Marcus Today!

Meanwhile I look forward to a correction to buy stocks at lower prices. Predicting the bottom is the same as predicting the top. Turn your screens on every day and wait for the rally to start. You'll need a watchlist of stocks you want to buy, and you might as well start that now. It is the same as the list of stocks you wish you had bought already but didn’t.

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