“Is it still worthwhile entering the stock market?” is the most frequently asked question at nearly every media interview. This reflects the widespread attitude that bourses are casinos – you get in, put everything on red, cash in, and off you go.
- The summer of 2021 was another lesson in patience. You had to take part and stay invested to be a winner. Central banks seem unwilling to break the uptrend in equities.
- The US economy is growing a little less.
The reality, of course, is different. Placing a bet on red gives you a chance of winning in 48.6% of all cases, so each dollar placed yields 48.6 cents, on average. In contrast, the average returns for equities over the last 100 years was 8%–10% p.a. (depending on the market and the currency). Our technical analysis team ran the numbers: since the lows of 2009, patient investors have quadrupled their returns compared to those applying simple market-timing rules (see the number of the week). Many will say, “That was just an extraordinary phase”. Yes indeed, this is just the type of extraordinary phase you need to make it to 8%–10% p.a. in the long run to compensate for intermediate setbacks and breakdowns. So to get ‘harder, better, faster, stronger’, most importantly, your wealth has to take part, which resonates with Olympic mottos.
No news is good news
This may sound like we are saying “we know best”, but we come to our conclusions through the culmination of longstanding attempts to know better while eventually accepting the futility of trying to do so. Take the latest example from the US Federal Reserve. It is one thing to predict the path of US monetary policy correctly but another to sense how bourses will react to the news. In fact, there was not much ‘new news’ in the statements released last Friday. Yet despite the lack of news – or maybe due to this – some stock market indices climbed to new all-time highs.
Conclusion for investors
Thus, we stick to what we currently have and do some housekeeping by reducing the US growth outlook slightly due to the pandemic.
Number Of The Week
What is going on in the markets? Julius Baer’s experts share their views.