Beware of the “Sneak Peak” (of market timing…)
If you’re stumbling around in the dark trying to figure out which countries’ markets will perform best in 2007, rest easy. I have seen the light.
Guiding me to the answers was an emailed invitation from the editor of Forbes magazine to join other “serious investors” and take a “sneak peak into 2007″.
Following the link, I was led to a web page <http://www.dfaau.com/r/?u=http://www.forbes.com/2006/12/09/2007-predictions-sneakpeek_cx_pm_sp07_land.html>, containing columns by Forbes writers and video interviews with “leading” analysts, on the likely trends for the coming year in markets, industry, the world economy and just about everything else.
The first item to grab my attention was an invitation to “run with the bulls”. This led me to a brightly lit and sunnily hosted video interview with an analyst who tipped the Dow to rally 20% this year to 15,000. This call was based on 2007 being the third year of the US presidential cycle.
“Alright! That makes sense,” I thought to myself. “Time to take some money out of Australia and load up on US shares.”
But no sooner had this cheery segment finished than another, more sombrely lit and presented, video started up. This segment featured a less televisual host, who invited me to watch an interview with an economist who sees a US recession in 2007 as all but inevitable.
This man’s grim forecasts of a housing collapse and an impotent Federal Reserve soon had me ditching the plan to switch into US equities. Now I was confused. It was time to look for inspiration elsewhere.
Next was ‘Invest Like a Billionaire’ — a segment where a “renowned money manager and billionaire” told me about his new book, which says that getting rich boils down to asking yourself “The Three Questions That Count”.
“That’s what I need,” I told myself. “Three questions. How hard can it be?”
Well, either Mr Billionaire wasn’t explaining himself too well or I’m more stupid than I feared, because his questions may as well have been phrased in Klingon, or some other obscure language from an outer galaxy.
The three questions for profitable investment, and I quote directly, are:
• What do I believe that’s actually false?” Ah . . .wait a minute . . .no.
• What can I fathom that other people find unfathomable?” Ummm . . .
• What the heck is my brain doing?” (I kid you not).
The first two questions didn’t really make any sense at all, but after watching this interview, the third question resonated with me somehow.
It was clearly time to shift my focus from the US. So I accepted Forbes’ invitation to “sneak a peak” at the outlook for international global markets in 2007. Maybe this would help me shape my portfolio.
One writer tipped Russia, China and Latin America, based largely on an unstoppable commodities boom. Yes, that made sense.
Or maybe not. The next guy said commodities was a bubble and the coming US recession would drag down the global economy, put the skids under China and send the commodity-producing economies into a deep funk.
Oh, hold on, said a third. Forget China. Look at Japan — second biggest economy in the world, in the midst of a self-sustaining economic recovery, but with an under-performing equity market and now a rolled gold value play.
The wonder is that all these writers were purporting to offer me “unconventional wisdom”, when what you and I are pining for is the conventional kind.
So I’ll give it to you. The fact is that no one knows what’s going to happen in the US or world economies this year or any other. No one knows which market is going to perform the best. And you should treat with extreme scepticism anyone offering you glib, one-size-fits-all investment trends or philosophies.
As to which country will be the star performer this year, take a look at the chart below. This shows you the equity returns of developed markets in each of the 25 years from 1980.
See a pattern? No?
You’re right. There isn’t one. It looks like a quilt made by my half-blind grandmother.
For instance, if you’d jumped on the Italy bandwagon at the end of 1980, a year in which that market topped the league table with a 79% return, you would have missed the Swedish boom of the following two years. By 1984, Italy was one of the worst performers, with a gain of just under 3%.
Likewise, Singapore was one of the top performing markets for a three-year period in the early 1990s. But three years later, it was at the bottom of the table.
The lesson is that timing markets and countries is a mug’s game. That’s why you stay diversified and disciplined. It’s also why you should treat purely as entertainment those media supplements on the year ahead in markets.
Oh, and keep a record of them. They become even more entertaining a year later.
* Jim Parker was formerly a senior editor and financial markets writer with the ‘Australian Financial Review’. DFA Australia Limited is the Australian subsidiary of Dimensional Fund Advisors and is a registered investment manager in Australia and the USA. It also provides investment research reports and insights.
Tags: Investment strategy, market timing