There is no getting around the fact that markets are very volatile at the moment. We see big swings in the prices of shares, commodities, gold, currencies and the oil price on a weekly, sometimes daily basis. All of this can make an investor very nervous and often even despondent about investing, resulting in new capital remaining in cash.
We firmly believe that to be a successful investor, you have to be a positive person. Investing is all about believing that the future will be better than the past. If we look at the standard of living, mortality rates, life expectancy and so forth, there are many research papers showing that on average we are much better off than 50 years ago, even if you don’t feel happier. I suppose we all got caught up in the vortex of negativity spread by social media over the short term; but at last we havereceived news from two other wealth managers that things are actually not that bad on the investment front and that there still is a lot to live and invest for.
As financial advisors we have to sift through loads and loads of newsletters and financial papers, searching for original content and objective research to form our own opinion about where to invest. We have been optimistic about the way AI is changing the world and positive about the investment case for the companies that are making it happen, but there are so many doomsday prophets out there that we sometimes feel like we are alone in our positivity. That is why the following paragraph from an Anchor newsletter has made us happy:
“Investors are rarely short of reasons to worry, and today the prevailing concern is that US equities are in an AI-driven bubble. Comparisons to the late-1990s Technology Bubble have become commonplace, while warnings of an imminent market crash grow louder by the day. Yet successful investing has never been about drawing simplistic parallels with history. The differences between market cycles matter as much as their similarities. While valuations are modestly above long-term averages, they remain well below previous bubble extremes and are increasingly supported by stronger corporate fundamentals. More importantly, the unprecedented investment cycle underway in AI is driving robust earnings growth and has the potential to reshape the global economy for years to come. Although periods of volatility are inevitable, we believe investors continue to underestimate both the scale and duration of this technological transformation. In our view, the secular bull market in global equities remains firmly intact.”
Another positive came from Paul Theron of the team at VestAct who literally used the driverless Waymo taxi in the US and said it worked superbly and that paid subscriptions for AI models are still only at 2.2% of households, so a lot of adoption potential is still out there. We are currently in that period where US companies report on the last quarter’s numbers and it is usually a time when we see big price movements in the shares. Last week we saw Alphabet report superb results but the share price dropped 7%. This should be seen as a longer-term buying opportunity rather than a selling signal. Some fund managers are pretty good at taking advantage of these opportunities and we have seen consistent performance from, for example, Orbis – to name just one. We have to remember that there are two nasty wars being fought at the moment, impacting the price of oil which is the lifeblood of many industries, resulting in higher inflation and interest rates. Once these wars fade away we will see much more stability and confidence return to the markets and you have to be in it to win it.