While you never know what the future holds, you can plan and prepare for more likely outcomes than others. That is, you can try and increase your probability of being right. So starting the year with an expectation that the market could endure a correction of 10–20% at some stage is, I think, a sound and reasonable expectation.
With the Trump tax cuts likely to prop up confidence and the US economy, I think you should have at least a part of your portfolio in some speculative sectors. If the good times are going to continue to roll, you want to make sure you’re making hay while the sun still shines.
Today’s article, originally published on 20 October, looks at a persistent myth in markets, a coming ‘step change’, and how you could profit.
Passive investing is a mug’s game. If you want to chase down the biggest and best returns, you need to pick winners. Be active. That may come in the way of stocks — or in our view also in crypto. You must consider investing in these areas for 2018.
You probably know the old saying, ‘There’s more than one way to skin a cat.’ It simply means there is more than one way to do something. Nowhere is that truer than in the world of investing. Don’t think there’s only one way to create wealth. There are many.
The promise of tax cuts and its impact on company earnings continues to drive US stocks relentlessly higher. While that’s well known, the question to ask is whether the tax cuts are already priced in. Are investors now being too optimistic about the impact of lower tax rates on company earnings?
When thinking about your longer-term strategy, the first question you should ask is, are we in a bull or bear market? At the start of the year, I was pretty confident we were in an ongoing bull market. Now I’m not so sure.
The market is an emotional beast of a thing. What’s the secret behind the success of everyone’s favourite investor, Warren Buffett? I would say his extreme rationality. Buffett has a unique ability to stay rational in highly emotional situations.
Like the dot com boom, all sorts of innovative cryptocurrencies have sprung up, or are about to. Those that smugly declare cryptocurrencies will end up in a new dot com crash miss the point. But there are certainly lessons you can glean from the dot com era.
You may have heard of the ‘prisoner’s dilemma’. It’s a standard example in a branch of economics called game theory. Well nowadays, the classical models of economics taught in universities have proven to be poor models of reality. Which brings us to the investor’s dilemma today.