Regular readers will know that I am a firm believer in the concept that trying to time the market is futile and that adopting a more medium-long term approach in line with a Warren Buffet style philosophy is the key to investment success.
However, media consistently bombards us with the opinion of ‘experts’ and they generally advise that we act in one way or another. Frustratingly for readers and investors, there is normally at least half of them that think one thing and the other half believing the total opposite. Furthermore, both sides will be able to ‘prove’ their viewpoint with historical data.
It is for this reason that I found the below article to be so refreshing.
One of the most successful money managers in the world who is currently responsible for a tremendous amount of invested assets quite simply saying that he doesn’t really know what is going to happen next. Finally, somebody has had the courage to hold their hands up and say that the current situation is so unlike any that we have seen before that attempting to predict the outcome is ridiculous.
He does, however, predict a recovery and that will come around the beginning of 2021 in his opinion but he does suggest that this is only a ‘best guess’.
So what should readers and investors be doing? Investing (as long as you can actually afford to)! We all know that a recovery will happen, we just can’t say with any degree of certainty exactly when. That said, we can be reasonably certain that if you have a medium – long term view then you would be buying at depressed prices at the moment
‘At current depressed price levels, people should be investing, he said. But there’s a big caveat: only if they have “secure cash flows,” which are much more elusive in the current crisis.’
But what makes this particular money manager such an authority? Why is he right and the others wrong? There are a number of reasons why I chose this article to share above all others, the main one being that he is not trying to second guess or predict what every text book will tell you is unpredictable. Regular readers will remember the article that I wrote at the end of February, 6 Tips to Navigate Volatile Markets, and you will, hopefully, notice some similarities between what this money manager is saying below and what was said within that text. You cannot time the market, and if you are fortunate to manage it successfully once, then you need to be lucky a second time to know when to buy back in. It is unusual to get lucky twice.
‘Young said his cynicism about confident market calls is born out of more than 30 years’ investment experience. Even if someone correctly times the market once, they’re unlikely to repeat the feat, he said. And bottoms, he said, are only easy to identify after the fact.
“I’m sure the market bottom, as it always is, will be obvious with hindsight,” he said. “People identify it with one particular thing that it happened to coincide with. Again, in my experience, that’s often not quite right. But it’s an easy explanation for people with hindsight. I’m afraid you never know.”
A $645 Billion Manager Says Calling the Market Bottom Is ‘A Mug’s Game’
Tom Redmond and Abhishek Vishnoi
The coronavirus market sell-off is probably past its worst, strategists at Morgan Stanley have said. Jeffrey Gundlach sees bigger losses ahead, while Howard Marks went from bearish to more optimistic in a week.
For another veteran investor, calls on whether equities have reached a bottom are nothing short of futile.
“I think it’s a mug’s game,” said Hugh Young, head of Asia Pacific at the $644.5 billion manager Aberdeen Standard Investments. “Nobody has the answer.”
Shares across the world have recovered some of their losses from the rout spurred by the virus. An index of global equities has risen more than 20% from its low in March, technically entering a bull market, though it’s still down more than 18% this year.
For Young, it’s possible markets have reached a bottom, but it’s far too early to say with certainty.
“It feels as though this is going to go on for a fair old time,” he said. “And to an extent that must be in prices. But then we’re seeing some quite sharp government action, whether it’s bank dividends or changing rules on loans, foreclosures and all sorts of things. So it’s very hard to be precise.”
Young argues that global lenders’ moves to halt dividend payments after pressure from regulators came “slightly out of the blue.” More knock-on effects of the coronavirus crisis are likely, he says, and it’s impossible for them to be fully incorporated in prices.
Aberdeen’s flagship Asia Pacific Equity Fund has fallen about 18% this year, according to data compiled by Bloomberg. Over a three-year period, it’s beaten 66% of peers.
Young said his cynicism about confident market calls is born out of more than 30 years’ investment experience. Even if someone correctly times the market once, they’re unlikely to repeat the feat, he said. And bottoms, he said, are only easy to identify after the fact.
Hindsight Benefit
“I’m sure the market bottom, as it always is, will be obvious with hindsight,” he said. “People identify it with one particular thing that it happened to coincide with. Again, in my experience, that’s often not quite right. But it’s an easy explanation for people with hindsight. I’m afraid you never know.”
What, then, can an investor such as Young say with confidence? For one, the crisis will last for at least several more months, and many businesses worldwide will come under severe stress. There’s still a lot of pain to come through, Young said.
“Our best guess is that this year’s a write-off and then things will normalize at the beginning of next year,” Young said.
At current depressed price levels, people should be investing, he said. But there’s a big caveat: only if they have “secure cash flows,” which are much more elusive in the current crisis.
Nobody Knows
Another veteran money manager echoed Young’s view about attempting to call the low, while saying statistically there could be more pain ahead.
“No one can know if we are at the bottom in index terms,” said Mark Mobius, who set up Mobius Capital Partners last year after three decades at Franklin Templeton Investments. “We do know that historically for all markets the average bear market decline has been about 50% with a range of 23% to 70%. So if history is our guide, then we could have more to go.”
