Quarter 1, 2018 and its losses should not have come as any surprise to investors, given the near 10-year bull run enjoyed by equities. Quarter 2 though, taught a valuable lesson to all investors about the folly of market timing. It would have been a very understandable investor who disinvested or at least reduced risk following Q1 and yet Q2 rewarded those who stayed invested in the S&P500 with an 11% return in just three months recovering all of Q1’s losses and adding a bit more. The passive funds that we use returned 1.5%-8.5% depending on the risk taken, well ahead of inflation. This may be a temporary ‘melt up’ before the proper crash comes which would mean that no one will remember the returns of Q2 2018. All of this points to the fact that in the short-term no one really has a clue which way the market is heading and that anyone who claims to have got it right in the past is probably the random survivor, visible only with hindsight.

Recently at Altor we have been spending time listening to one of our favourite finance speakers, Andy Hart. Andy is an IFA (he charges a % but otherwise is one of the good guys) who refuses to give any market commentary and for good reason. His argument runs that if we accept that the markets always advance, only suffer temporary setbacks and that your capital is invested for the long-term, short-term market commentary is pointless. We agree and yet assume that our clients find our commentary interesting to go with their new quarterly statements.

The longer-term projections are perhaps easier to make and more important. As a firm we try to run cashflow forecast for all of our clients’ capital (there is no point with some clients with purely surplus capital) which depends on making an assumption on the future net annual returns in excess of inflation from their money. With this in mind we have recently spent time with the clever economists at Vanguard who has revised downwards their equity growth forecasts for the next 10-years to roughly 4% per annum from the roughly 8% per annum returned over the last 10. Their point is that the last decade has given some future returns to investors too early and therefore there is less to be had in the future. This seems rational and whilst they are not explicit about it, they probably mean that at some point there will be a correction in prices to take back those premature returns and then we will return back to ‘normal’ rates of equity growth. Whilst some clients might blame us when markets turn (as they inevitably will at some stage) for not being clever enough to de-risk, the mantra must remain the same that given time, the markets will make you money and the question is not when is that time but rather have I got the time.