John F. Kennedy once said “a rising tide raises all boats”, he didn’t have you in mind when he said it, but it is true that the last decade has seen investors wealth rise rather nicely and all asset classes rising at once. This has been partly due to the kind of central government intervention of which, JFK was rather fond. He might, however, have been rather more keen on the big government infrastructure projects of his time than the big government support of the banking sector of ours.
To stay on theme, Warren Buffett is famous for saying “only when the tide goes out do you discover who’s been swimming nakednassim “. Mainstream investors have seen some of the last decade’s growth being taken away in the first half of this year but the ones without swimming trunks are the Crypto Bros who have lost anywhere between 70% and 100% of their money since late last year. The same Warren Buffett said in April 2022 that he wouldn’t buy all of the Bitcoin in the world for $25. The first half of 2022 hasn’t been as bad for most investors as the Crypto Bros but they have still lost something meaningful in percentage terms. If you want to read about the lives ruined by the recent Crypto crash, click here.
Some managers are claiming it as a Black Swan event, given that both shares and bonds have fallen a long way at the same time. We don’t believe that it is a true Black Swan event, as we know the reasons why both have fallen. Neither asset class likes the combination of high inflation and a withdrawal of central bank support for the economy. There really wasn’t anywhere to hide in 2022, We have seen some mitigation of losses from some managers who are heavily using infrastructure or alternative funds but typically the losses they suppressed this year won’t compensate their investors for the gains they suppressed for the last 10.
So what should investors be doing as we move into the second half of 2022? Well if you feel as though you are surrounded by negative news then now might be the time to start getting excited about future returns. It is hard to think like the markets and not like an investor. An investor sees the performance they have just experienced but the markets are always looking 6-9months ahead. The data from the Consumer Sentiment Index shows that when consumer confidence is low there is generally always a positive market return that follows. The CSI is currently sitting at an all time low. At the same time the companies in the S&P500 grew their earnings by 6.7% year to date and shrunk their share prices by 20.6%, so multiples are now looking reasonable.
The temptation for investors is to listen to the noise and either sit on cash or invest in the latest fad investment or with the latest fad manager. It won’t garner headlines but the best advice is to stay the course, invest for the long-term and focus on the things within your control: costs and taxes. Warren Buffett also said to be “fearful when others are greedy and greedy when others are fearful”.