A few weeks ago an event was held for economists who work in investment-related companies. The first began his speech with this phrase: “what do we have to worry about today?”. The same phrase that, said literally or not, prevails in almost all the interventions of chief economists of securities companies in the last ten years. And the one responsible for so many investors missing out on great stock market rise of these ten years.
Don’t get me wrong: when you work in the markets you have to constantly ask yourself where the threats are. But that doesn’t mean you don’t also have to think about where the opportunities are.
The obsession of many economists and “influencers” with “the bubble, “the crisis” or “financial repression” have kept many investors in an ultra-conservative position, and now they find themselves with much of their money in accounts and deposits where they lose 5% per year. Because inflation will be “transient”, but it is real. And, even if it goes down to 2% later, they will still lose money.
Others are still in fixed-income funds, which have worked very well over the years – blessed “financial repression” – but as the “repression” disappears – lower rates – they begin to generate losses. And whose future is rather dark, because the ECB is going to run out of excuses to continue buying bonds. And without ammunition, since it has acquired bonds equivalent to 80% of the GDP of the Eurozone.
This position of many economists and “influencers” in relation to equities of looking at only one side of the coin, has an additional danger: the “Peter and the wolf” effect.
After so many years announcing the bursting of the bubble or the next financial crisis – the only one we have had has been a health crisis and logically none of them could announce it – many investors have lost confidence in these economists. The problem is that, when they really get it right, no one will pay attention to them. And they will “get it right”, because it is in the nature of the markets that crises occur and bubbles burst. But their ads will fall on deaf ears because they will have lost all credibility.
They remind me of those midday news on a television network that should be called “Las Misfortunes” rather than “The News”. The whole program deals with misfortunes of all kinds. But reality is broader and more varied and every day good things and bad things happen. Well, the same thing happens in the markets.
The teachings of all of the above are very clear. The first would be to listen to the opinion of analysts or economists who see both sides of the coin and “get wet” in establishing the scenarios most likely to occur. As I said at the beginning, it seems to me very healthy to always have an eye on problems, or, in motoring terms, that if we are going to overtake – reverse – it would be crazy not to look in the rearview mirror first and see if something is coming. car in the opposite lane. But that doesn’t mean you have to stay behind a truck for hundreds of miles.
What’s more: among the enormous advances that the collective investment industry has made – investment funds and ETFs – there is also facilitating access to products that benefit both from an increase in an asset – the “classics” – and to products that they benefit from the “fall” of an asset. We can take advantage of the opportunities offered by the market both upwards and downwards. And I want to insist on this point because, for example, right now it is as easy to invest in a product that benefits from the fall in the price of bonds or shares as in one that benefits from the rise.
Protecting yourself from rising interest rates on bonds is not crazy. What is crazy is to get carried away by the fall in the value of fixed income funds that generates a rise in interest rates in the market. Nor is it crazy to invest in a currency other than the European one if the ECB decides to forget about the risk of inflation. In fact, unless the euro is very strong, it is good to diversify into other currencies, just as it is good to diversify into equities and real estate investment.
In the end, it’s like life itself: who only sees the negative ends up with a horse depression. In the markets, whoever gets up every day listening to someone who transmits something negative and that his way of working is to ask himself what he has to worry about is not a good way to invest. The last 10 years are good proof of this, including the coronavirus crisis. And I mean global equities, not Spanish equities. Our country has been in a process of economic decline for many years, which makes it unattractive to invest in equities.
Finally, the moral: when Pedro stops announcing that the wolf is coming, we will be facing one of the signs that the time has come to consider withdrawing. The day you see the economist mentioned at the beginning start his presentation without the famous phrase – or another similar one-, I will review numbers, trends and risks. In case I missed something.
*** Víctor Alvargonzález is an independent financial advisor and founding partner of Nextep Finance.