I think 2020 could be the start of a golden era for investing and I’m determined to remain fully involved in shares.
Long-term investors have just experienced a difficult couple of decades. At the beginning of the millennium, we had just experienced the so-called dotcom boom, which drove many tech firms to nosebleed valuations, whether they were profitable or not.
Plunging markets
However, the following collapse of those unrealistic share prices – the so-called tech wreck – was devastating for many. And it wasn’t just over-priced jam-tomorrow junk shares that plunged because decent, profitable firms did too.
In the parlance of the era, ‘old economy’ stocks were trading at ridiculously low prices. And a bull market kicked off from the beginning of 2003 onwards. But it all came crashing down again between mid-2007 and early 2009 with the bear market brought on by the credit crunch and the almost complete failure of the banking system.
The stock market was as brutal in that period as it had been during the tech-wreck plunge. Shares of cyclical firms such as banks, housebuilders, retailers, miners and others lost more than 95% of their value in many cases.
But that bear market between 2007 and the start of 2009 pushed all valuations down – not just the cyclicals. And the scene was set for some lucrative investing, but only if you could overcome your fear after having been so battered!
In many ways, the years following 2009 were something of an investing sweet spot. I remember finding many companies with a great record of rising revenue, earnings, cash flow and dividends and healthy-looking forecasts. But they were languishing on single-digit earnings multiples with chunky dividend yields. It proved to be a good move to buy those cheap shares because up they went and the period proved to be a lucrative one for many shareholders.
We saw more market jitters in 2015 and 2016, resulting in plunging shares and shredded nerves for shareholders, and the political situation and uncertainty surrounding Brexit probably contributed to that. And more recently a trade war between America and China has been unsettling markets.
Breaking out and normalising
The charts for the FTSE 100, FTSE 250 and other indices show big, multi-year consolidation patterns. And I think that makes sense. With such a big shock to the financial system just over a decade ago with the credit-crunch, governments took all sorts of measures to try to get economies to recover, such as setting extraordinarily low interest rates and using quantitative easing. Big holes fallen into take a lot of digging to get out of, I reckon.
But I also reckon the world could be nearly out of the hole and we could see economies, shares, and indices breaking out of their long consolidations as things normalise. And the breakout could be into a new golden era for many things, including shares.
