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Did Boris Johnson make the market fall

by , 13 December 2021
Did Boris Johnson make the market fall
I sometimes imagine the stock market as a constant humming. Not the hubbub hum of an open outcry trading floor, nor the electrical buzz and click of servers and machines, but the whine of millions of voices guiding billions of dollars, rand and rupees into bets on global business profits, economic scarcity and the future direction of mankind. It's the droning roar of the engine that powers the world.

This past week the market noise has risen to a fever pitch. And, I'll be honest, I'm looking forward to the noise settling down a bit as we head into the final weeks of 2022.

It's been an incredible year. Maybe I'm just getting older, and time is going faster, but it feels like we never quite got into 2021. It was more like 2020 part two...

Just when you thought it was safe to go back in the water. Omicron!
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Don’t listen to the noise
 
As a market commentator who also happens to be a portfolio manager, I often get asked how I’m reading markets. I get asked to explain the short-term price movements in global indices. And the truth is it’s almost impossible to do this with any degree of certainty. There are just too many myriad factors driving an index’s performance to point to any of them reliably, no matter what you might hear from journalists in the mainstream media.
 
 
“The market sold off heavily last Friday as fears rose around the Omicron variant”
 
Sure, it did. The S&P500 index hit an intraday low of 4495.12, down -5.24% from its recent all-time high on the 22nd of November 2021, as traders and investors bet that further lockdown restrictions would emerge around the developed world in response to this more contagious variant that had, not only set South Africa's teeth on edge, as flights were cancelled, but elevated concerns around further supply chain disruptions.
 
Of course, that all sounds great.
 
But most investors should also realise that businesses (the driving force behind the profits you earn on the stocks you buy) have in many instances adapted to the post-covid world. The average business is more able, than ever before, to deal with a world of vaccine passports, mask wearing customers and sporadic lockdowns.
 
Then there’s inflation…
 
Of equal or greater concern to investors is the rising spectre of inflation. My colleague, Viv Govender has written about this topic on numerous occasions over the last few months in this very Money Morning Friday column. Sure, supply chain disruptions are causing price spikes in certain goods and services.
 
The lack of semiconductors has thrown a giant spanner into the works of many industries that rely on advanced technology. But most serious investors should realise that the free-market system is pretty good at dealing with price disruptions.
 
When the price of used cars spikes, well business is incentivized to capture that supernormal profit but producing more and filling the supply gap.
 
What is not so benign is the heavy, very visible, hand of government, crashing into the game with stimulus checks and infrastructure spending programs.
 
When you have a Biden spraying US treasury funds directly into the economy, you suddenly don’t have free markets operating at all. You add that to aggressive progress in technology, a forced cultural shift to digital remote working, a generation raised on Facebook and social media and potentially a significant portion of the population suffering from long covid and suddenly you have the emergence of incredible new economic phenomena like: The Great Resignation also known as The Big Quit.
 
Yes, we’re finding out the hard way, if you promise all the kids, they’ll be movie stars and jetsetters, then totally isolate them from human contact, and then you pay them not to work, well you tend to get people resigning with some pie-in-the-sky ideas.
 
What about China?
 
Then you have China, the elephant we all seem to have stopped talking about.
 
The more fires Beijing seems to douse, the more quickly the next fire springs up. And, while the Evergrande story has gone quiet, it’s very possible this could still pose a systemic risk to the Chinese system. Remember a large portion of Chinese wealth is held in the property market. If that trend changes.
 
If the average Chinese saver decides that buying flats to let out is not the way they’d like to preserve and grow their money… well, we could be in for either a monster boom or a total collapse of Chinese economics.
 
Yes, the market commentator in me is 100% certain it will either be very good, very bad, or neither.
 
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Can we thank Boris for the sell off?
 
Maybe the sell-off we experienced yesterday WAS thanks to Boris Johnson being forced into Plan B, which means that the UK will have to start wearing masks indoors and potentially (gasp) work from home (if they can) to combat rising infection numbers…
 
But Boris this isn’t how you said it would go!
 
You promised us the vaccine would be the solution!
 
Did you lie to us, dear politician?!
 
No, probably not, he’s just as confused as the rest of us. The world has a helluva lot of moving parts!
 
And if you can’t reliably know why one market moves one way and another, another way, what hope do you have of investing correctly!
 
So, if you can’t reliably tell why the market was up or down, how on earth can you invest money?
 
Well, when it comes to investing money, I have a much higher degree of certainty about what it takes to get it right. Firstly, when you’re investing money for yourself, or clients (strangely) people very seldom question (or care) why a market has moved one way or the other on a daily basis. Most people realise that trying to predict the ultra-short-term moves in financial securities is far, FAR, less important than correctly structuring your investment, getting invested sensibly in the right risk band and asset class, and having someone in your corner that truly has your best interests at heart.
 
Yes, you need to identify the long-term trends, and I’m not advocating flying blind, but the idea that you always have to know exactly why every moving part did anything is to lose the very important bigger picture.
 
You see, managing your money well should actually be quite boring. Investors are not supposed to be media entertainers looking for the next interesting story. Once you’ve identified the right trend, once you’re invested in the right products, you can usually sit back and relax.
 
They say money is like soap. It’s slippery and the more you handle it the less you have.
 
Most people should not be looking for that rockstar trader trying to make them 10% a week. And if you do find yourself in this category, you’ve probably already taken a few missteps. Those kinds of returns are possible but are also generally unsustainable.
 
Remember: If it sounds too good to be true, it usually is…
 
Instead, sensible investors seek out someone they can look in the eye and believe honestly wants to do what is best for their funds. It’s a large part of how I vet company management teams and it should be how you are selecting your investment advisor.
 
You really don’t need to look for answers to every price move, instead focus on working with trustworthy investment partners.
 
Don’t try to second guess what’s happening in China, or the UK. Don’t try to become a vaccine expert overnight. This is the road to failure.
 
A truly successful investor leverages the expertise of others.
 
If you asked me my personal view on the impact of the Omicron variant, I'd be happy to share. I believe, by all indications, the Omicron variant is following the same path as many of history's viruses. It is becoming more contagious. A recent Japanese study has said it’s 4.2x more transmissible in its early stage than Delta. But it’s also becoming less fierce. If a virus kills (or makes a person incredibly sick) it doesn’t spread as well because that person is simply not around to spread it. A virus that doesn’t harm you as much, gets to survive longer and spread further. But then I am no virus expert.

Even so, this view only informs my investing decision in the most subtle ways. And even if I’m totally wrong it should have no significant impact on my performance as a money manager.
 
In fact, I would go so far as to say, as a retail investor, your view on the way the virus will play out should have almost no effect on how and where to invest. It simply shouldn’t be a factor you’re considering.
 
You see, I believe what does matter is investing in the right expertise. I like to invest in companies that have a proven track record of success. I believe in investing in companies that are managed by the world’s top business leaders and have products with global reach that are actively used by millions (if not billions of people). I believe this is the best place to generate sustainable long-term returns. I use the skills of incredible people like Jeff Bezos, Elon Musk and Satya Nadella to make the right decisions.
 
And you know what, the kinds of businesses I’m looking at may be impacted by this terrible virus this year, last year, probably next year, but they’re not going to go bust, and they are going to adapt. They’re going to see their competitors break and they’re going to expand their market share and reward investors exponentially.
 
You see, I want the best minds in the world waking up every day and combining the ideas to see how they can best maximise the profits on my investments. At the same time, I want to make sure that I’m only holding a small portion of my wealth in a variety of these types of businesses, so that if any one business I’ve chosen performs poorly, or even goes bankrupt, the bulk of my capital is safe and protected. I want a non-correlated diversified portfolio.
 
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This strategy, which just seemed like sensible money management to me, has generated around +126% for clients in USD over the last 5-years at a very low volatility for an equity portfolio.
 
I read a while ago about the British cycling team. Sir Dave Brailsford became its head in 2002. Up until that point the British cycling team had only won a single gold medal in its not-so-proud 76-year history.
 
Sir Dave, who held an MBA, applied his theory of marginal gains to the team. He figured it’s a lot easier to get ten 1% improvements than one 10% improvement. They broke down everything that it meant to compete in a cycle race. They tried to focus on getting 1% improvements everywhere. The result: They won eight gold medals in the 2008 Beijing Olympics.
 
That’s exactly how we like to invest. It’s not about killing the market for a year or two and then going bust. It’s about regular, boring, small wins that eventually result in sustained outperformance. This portfolio has beaten it’s MSCI World benchmark four years out of the last five.
 
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Did Boris Johnson make the market fall
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