Hydrogen bombs going off are not normal events but global financial markets shrugged off the latest big bang in Korea and equity markets, in particular, moved higher. Whilst fully valued – or even expensive in many cases – at least the flow of economic data is supportive of this. Nonetheless, we are still expecting something of a pull back. Perhaps, in the region of 5% to 10%. This leaves something of a quandary – to stay invested or to de-risk?
In fairness, we have been here before. In fact, it was only last year that we wrote, “Normally one would hope to have an alternative to richly valued equities – but bonds are expensive too. That means it is very difficult to see obvious places to put your money. What felt like a cosy and optimistic consensus a few months ago is now starting to feel more like nervous inertia.” Definitely a bit more than déjà vu – but then we did go on to say, “Unless you expect a full blown meltdown – and we do not – then focusing on acquiring good quality assets at favourable prices remains the smart thing to do.”
A year on and we can only reiterate that point. We have talked a lot recently about why we remain positive in the medium term despite some shorter term nerves. It is the opportunity presented by such nerves being translated into a pull back (or correction or whatever else you want to call it) that should enable the acquisition of those quality assets. The word quality matters, though. We have seen only too clearly how quick the market is to punish companies that lack it and fail to deliver.
Our past really can inform our future. Last year we said, “Our strategy has been put in place to address these current uncertainties. J udicious diversification, including positions in gold and cash, means that we have the ability to ride over short term bumps without panicking.” Frankly, this approach remains sound. There will be problems thrown at markets – whether they are big bombs or more political skullduggery over Brexit. Focus and common sense need to be applied and, as usual, that focus needs to be on the wood and not the trees.
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