Investing in Changing Times

One of the long ignored aspects of investing was a need to know about macro issues. Since we all agreed that globalisation was the best approach for all countries, there was no nee to waste time thinking about macro issues like trade flows, movements of goods and services and also importantly capital flows.

But now after 40 years this largely agreed approach is changing. 

It is not an exaggeration to say we are living through some serious changes and we are only at the beginning. There is a long way to go. 

And this will impact how we invest over the next 30 or 40 years. 

At the moment most asset classes are overvalued - stocks, bonds, gold, property and cryptocurrencies. While some have been more volatile than others, each has enjoyed their time in the sun.

Mean reversion is often said to be the iron law of investing and if so then we can expect many of these asset classes to revert to their long term averages. 

So how do we invest in this expensive, but rapidly changing world?

There are two way. One is to select the asset classes that you think align with the chain aging global environment. For example, I think commodities after a dull 10 years are ripe for improved performance over the next decade. So of this has already started with rare earth stocks taking off along with precious metals like gold and silver. 

The other way is to use the process of investing and most people are unfamiliar with this approach. 

We teach the 8 principles which include asset allocation and rebalancing and I consider these two to be useful in investing when markets are expensive. The secret is to not maintain a rigid view of how markets ‘should’ behave but understand how they do behave.  

The other way is to understand market structure and flows so you can go short expensive markets with higher volatility or use a mix of going long and short at the same time which reduces returns in the short term but also reduces risk and thus delivers better returns over the long term.  

We will discuss these approaches further here and on the podcast. 

Stay tuned.