Jul 03

Damned if you do or don’t

The worlds markets are at their highest levels in history, or at least they are as I write this column. So without repeating the usual rhetoric of the radio, tv and newspaper doom merchants what does this mean to us, the people who advise the general population?

If you are sitting on the edge of your seat waiting for me to solve the most burning question of the last six months, namely ‘should we go into the markets at these high levels or stay out?’ then please do one of two things, (a) prepare to be disappointed or (b) make a cup of tea and prepare to hear just another man’s opinion.

The PE’s are too high historically, the PE’s are too high on a future basis, there has to be a correction, there has to be a crash, the use of money will end, we will revert to trading in goats to feed our families. The degree of the forecasted and impending doom varies as much as the index graphs, as they ‘seemingly’ climb ever higher to new dizzy heights. With all of this in mind you may feel that you may be better off investing in trouser bonds, cabbage futures or ‘fine art’, quite how one ‘doomster’ thinks fine art will boom in a future feudal cashfree society is, to be honest, totally beyond me.

Let us pause, in 1983-87 I remember one doom peddler screaming ‘get out, get out’, he was, as they all are, eventually proved right and a correction finally occurred in 87 but its dramatic fall never reached the level at which the market sat when he started shouting ‘the sky is falling, the sky is falling’.

If you tell me that Liverpool will win the Premier League, or Bafana will qualify for a World Cup you may live long enough to see it, approximately 150 years should do it, and eventually be right. What I do know is that the PE’s today are little changed from late last year, the US economy is recovering as is Europe, slowly I know, but those classic ‘green shoots’ are showing. So here is the ultimate opt out. If you are worried stay out, and in the US and Europe you will earn 0.5% on your cash, in SA you may get 5% if you are clever, but inflation will eat that and you will stand still or even shrink in value. Or you can pick quality, not just the stocks but also the managers looking for that quality on your behalf.

Unfortunately there is never one simple answer or a black and white picture, only shades of grey. Historically it has always been more damaging to be sitting on the side lines rather than in the market. Obviously a catastrophic disaster and melt down will change that observation, but the ‘end of the world as we know it’ forecasters have been around for 10 000 years so perhaps we have a few more years to enjoy before we need to build an Ark.

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