Unfortunately I've just gone through yet another birthday. Is it just me or is time passing more quickly as I get older? It's hard to believe a year has gone since the darkest days for investors. I wonder if you remember how bad things were, made worse by hysterical Armageddon predictions by legions of pessimists?
At the time I did my best to give readers good reasons to be cheerful, reasons supported by historical facts and not opinions. Remember the economist, Edwin Coppock? Some 50 odd years ago the US Episcopal Church asked him to come up with an indicator capable of identifying long term investment buying opportunities.
He took the unusual line of comparing stockmarket downturns to bereavement and consulted sociologists about the average length of time close relatives take to recover emotionally. He believed emotion was a powerful counter indicator in stockmarket movements.
Coppock's research suggested it takes eleven to fourteen months for people to recover emotionally from a life shock such as a bereavement. And thus the Coppock Indicator evolved.
Prior to last February it had been 100% correct. So I pointed out last year as it turned up again that was a good sign. I reminded readers the National Bureau of Economic Research in the US, also accurate predictors, confirmed the end of the US recession.
Sentiment indicators, accurate 27 times out of 28 over 65 years, were flashing 'buy'! Virtually every accurate technical indicator showed 'buy' signals but pessimists continued to ignore them. As a result, most investors were in a mad rush to perceived caution - deposits, gilts, absolute return funds and bonds.
But when investors madly rush in one direction you can bet it's the wrong way. Today deposits yield virtually nothing. Some Absolute Return Funds have been - well - an absolute disaster. Gilts are disappointing and will get worse next year.
But I have to admit Corporate Bonds stood up well. The most popular funds are up around 20%. But how does that compare to the asset class everybody was running away from - equities?
It's in world stockmarkets where the best performances have been as history predicted. But what surprises me is how little is said about this in the media, especially the Telly. And that's why most investors haven't noticed these stunning returns.
The higher the risk, and the more exposed to Emerging Markets or the Small Cap-Mid Cap sector, the better. But why should that be a surprise? That's what's happened before when we've gone through such extreme financial difficulties. So, why should this time have been any different?
Many developing country funds are up by at least 70% with Emerging Europe up as high as 150%. Commodity Funds are up over 75%. Less risky Global Funds are up over 50%. Well managed UK Growth Funds have bounced up between 40% and 110%.
You may also have noticed the US economy hasn't collapsed as predicted, and neither has the US Dollar. Gold hasn't run away with all the awards this year despite widespread expert views it would.
But it's time for the worry beads again. History tells us every time there's been such a bad crisis and then a remarkable recovery in stockmarkets, the next phase can be a bit bumpy. So if I was sitting with some fresh money to put into stockmarkets I would be a bit careful, buying value in sectors left behind in the last year, dripping investments in over the next six months.
I think we're a long way away from the end of the road. And there's a good indicator for this. History tells us that when there's a few days of red ink in share prices after a significant increase, and investor sentiment plummets in response as we’ve seen in recent weeks, it's time to hold on.
An edited version of this artice was published in The Scotsman,
on Saturday 27 February 2010
