The Dow Jones dropped 1,175 points on Monday — the largest single-day point drop in history —erasing all profits made so far this year. The 4.6% decline is the biggest percentage loss the Dow has suffered since 2011, when we saw a drop of 1,089 points on 24 August.
We could be at the start of a shift in investor sentiment. It’s a shift that now acknowledges P/Es are too high, given we’re in a rising nominal rate environment. So while rising rates won’t derail the economy, they will derail investor sentiment. Which means P/E contraction will be the driving force behind this correction. So how should you invest accordingly?
Hedge funds, collectively, are leaving investors worse off than if they had they bought a low cost index fund. It’s a terrible performance compared to many index alternatives. But of course, not all hedge funds take your money and deliver poor results. Some are actually worth the hefty fees they charge.
There’s a pecking order when it comes to investing. A hierarchy of opportunity. It’s a pyramid of power, carved out in the stone of regulation. The system is set up so that you aren’t allowed to invest in the early stages of the biggest opportunities. You have to be a sophisticated investor. That is a person rich enough to get a chance to make gains. Until now.
The divide between the generations is real. And although starting off has never been easy — and it’s not meant to be easy — it’s still fair to say no generation has had to start off at such a disadvantage when it comes to buying a roof over your head.
There is clearly some FOMO going on in global stock markets right now. That is, Fear of Missing Out. Missing out on what, though? Buying stocks on high price-earnings multiples at what appears to be the end of the cycle? The caveat here is ‘appears’. No one knows where the end of the cycle is. You just have to use your common sense.
We’re at the stage of the cycle where everyone is getting nervous. Markets have been on a tear for a long time now. In fact, it’s the second longest bull market in history. It’s easy to conclude that irrational exuberance has taken hold. And a huge crash is around the corner. So I mulled over the big indexes looking for signs of what the big investment money was really doing.
In finance and retail industries, the convenience and immediacy of apps have rendered traditional person-to-person services less relevant for consumers. Apps aren’t just a part of business now. They are the business.
As a child you are taught things are right or wrong. Black or white. But in the social sciences this is usually wrong. Scientific precision in such a complex field of moving parts it’s impossible to achieve. And it is in this field where you, as an investor, live. Which brings me to Nassim Taleb’s view on bitcoin and cryptocurrencies.
Some investors have already doubled their returns in 2018. No, I’m not talking about crypto investors. Shareholders in small-cap, Panorama Synergy [ASX:PSY] have seen their holdings jump 100% in 2018 already.