Investments: A Cynic’s view
After being involved in financial markets for more than 26 years (after practising as a civil engineer for five years) I’m convinced that things are seldom what they seem and that being contrarian to the general consensus will more often than not lead to a ”happy ending” – in the financial sense of the word!
Many cliché’s come to mind. My favourite one must surely be “this time it’s going to be different”.
Many a financial bubble was explained away by “experts”.
Around the end of the previous millennium there was a thing called the “tech bubble”. Vodafone’s shares were trading at £3,51 which implied a price to earnings ratio of about 175! Microsoft traded at $58,37with a PE ratio of 67,9. According to the experts these price to earnings ratios were supported, amongst other things, by the super productive new economy we were entering with uncapped earnings growth potential for these new economy companies.
But behold, history repeated itself and things weren’t as different as predicted by the experts. 12 Years later Vodafone is trading at £1,75 and Microsoft around $28.
And then there is the supposed commodity super cycle. The jury is still out on this one. But the Chinese better start accelerating their construction programs otherwise SA is going to end up in intensive care because of Dutch disease – which incidentally has nothing to do with “boertjies” or the AWB!
Which brings me to the favourite “pitch” of sell side participants in financial markets: “You cannot time the market. It is not about timing the market, but time in the market”. What a load of bull.
I yet have to meet the individual investor who will be patient enough to wait half his life (if he’s lucky) for his investment to show a positive real return. The Japanese are still waiting for property prices to get back to their record levels of days gone by. If you pay too much for anything you’re not going to earn a decent return.
So how can you lock in returns, i.e. take profit? You get somebody who’s prepared to pay too much for the asset you’re selling by giving him your expert opinion that you cannot and therefore should not time the market! And by the way most professional investment managers are paid a percentage of assets under management. So why would they discourage investors to get out of the market?
And then there are the market commentators.
They do have my sympathy because in many instances they have to explain the inexplicable and predict the unpredictable.
Markets are driven by many factors and perhaps the most important one is human nature.
Investment decisions made by humans will ultimately determine the market’s direction. These decisions are driven by greed and fear and influenced by personality traits like over confidence, fear of regret, loss aversion, hindsight bias, confirmation bias and many more. Which basically means following market commentators for investment advice is like the blind leading the blind – but then you do get a few good laughs from time to time…
Source: Jac van der Spuy, PSG Konsult Tyger Waterfront
This article does not reflect PSG Konsult’s view