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February, when the new year is really bright and about to run.
Friends come out of post-Christmas hibernation as they abandon their resolutions to never drink or go out again.
The sun appeared again above the cold blue sky. And the surest sign of new life – 2-for-1 Valentine meal promos M&S and Waitrose – are starting to poke their heads above the marketing noise, signaling the arrival of spring.
In breakdown
The kick-off of the Six Nations rugby tournament is usually an exciting seasonal marker for me.
But not this year.
You can see over the past decades, my team – Wales – has almost always been a contender to win the championship.
But this year we lost the first two games.
We lost to Scotland! A nation that – no offense – has not been competitive since the last century.
Wales v Scotland used to sit next to the Italy game as a chance to relax and watch the game without a finger in the eye.
Never. Scots have been excellent at Murrayfield this year. They blew Wales out of the park. January blues are back. All is forgiven.
Nigung
When Wales is in pomp and Scotland on top of it, it’s hard to imagine what’s different.
But that is so ignorant of history.
Economists call it “recent bias” – our human tendency to overestimate current evidence and underplay what came before.
Wales have played 129 matches against Scotland since 1883. And while Wales lead the way with 75 wins, Scotland’s 51 wins are almost inevitable.
Unless you believe that something has fundamentally changed forever in either Welsh or Scottish rugby, it is satisfying to imagine people dressed as daffodils will always provide cut shots of joy on TV broadcasts, to contrast with the cries of fans in kilts.
There is always a turnaround, and the run of it is about to be restored. Economists also have a term: return to the mean.
Caught offside
Shocking though it is also for us to be rucking and mauling features of fun there instead of meeting with dangerous dogs, economic wonks did not come up with this stuff to describe the fortune of the sports team.
As investors, we see the impact of these forces on the stock market all the time.
Very high margins tend to revert to the mean. Competition chips away at the company’s earnings margins.
Investors who are too biased in the assessment of the new super-high earners then finally find out that they are shareholders in a rather average company after all.
A good example comes with the key boom and reopening of the bust in the US technology sector.
Corporate CEOs and investors alike think the future has been pushed forward, as we shop, work, and even socialize from home as the virus spreads.
Income in the company in the sweet spot like Zoom and Platoon skyrocketed.
City center apartment prices are falling, as housing in the country is booming to reflect the reality of life under Covid restrictions.
But it all proved to be a recency bias at work.
As soon as possible, many people came out again. The share price of the crater lock winners.
And city center apartments are now better value for money than remote beachside retreats.
Or remember when oil prices briefly dipped below $0 per barrel in the early 2020s? That helped speed up a thousand obituaries for Big Oil, realized by spreading the ESG agenda enough to force society to reduce its dependence on fossil fuels.
Share on shell and BP steadily falling all year. At best, his future looks like a setback.
But then society opened up again and the evil invasion of Ukraine by Russia changed everything. Oil demand and prices are recovering. Left-to-die oil stocks have doubled.
In scrum
Whether you’re an investor in a tracker fund or a stock picker, you could do worse than sticking a Post-it note to your monitor as a reminder:
‘That changes’.
Bear markets don’t last forever – no more than bull markets.
Companies can always fall from grace, but it’s rare for a broad sector. More often than not profit margins rise and fall, taking stock prices as investors overplay new evidence.
What is the current certainty that may appear to pass in the future?
Inflation – and correspondingly rising interest rates – looks like a strong candidate to me.
It is possible – although in my opinion, unlikely – that we are on the cusp of an inflationary spiral that persists for years.
But it is easier said than done that inflation will return to the mean and interest rates will rise.
Long-term investors will be wiser to invest.
Or, on a stock-specific basis, a little squint and the big tech giants that have dominated our lives – and the global market back – for years suddenly seem vulnerable.
It is almost impossible to imagine AlphabetThe money-printing search business was challenged until ChatGPT’s chatbot arrived in November. Now it seems more than feasible.
Elsewhere it shows Meta – the owner of Facebook – has come out of the swoon of death, but inside the big company investing in Metaverse is still gobbling up attention and resources.
But it would be unusual for the winner of one paradigm shift to take the next. CEO Mark Zuckerberg knows this, so he’s throwing money at the problem. But there is no guarantee that they will succeed.
Meanwhile, TikTok continues to garner the attention it will bring to Instagram Meta.
Closer to home, London-listed REITs like English land, Landsecand Shaftesbury languish at 30-40% discounts for the value of their property.
With less than 35% office occupancy in terms of desk staff, it’s easy to see why.
But that number continues to rise, even as new development stalls, reducing future capacity.
In the end, the two forces will have to make up for it.
In the blindside
Or maybe they won’t? Maybe we won’t go back to the 2019 working pattern (although property assets may have value as flat conversions, say, or as hubs for e-commerce).
The terrible thing is that we cannot buy anything that has suffered the punishment of being beaten at the hands of the market, with the excuse of having to withdraw.
Capitalism and progress are not like that.
Wales and Scotland will play more games in the future. His fortune will decrease.
But the horseshoe tycoons of the 19th century are guaranteed to rot in the 20th, unless they make reliable axles for tires.
Everything changes, of course, but we can’t be sure when and how. That makes investing like a challenge – and supporting Wales like trying today!
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