The world is in trouble. BIG trouble. ‘Dr Doom’ Marc Faber, ‘maverick’ investor Jim Rogers and ‘rogue’ economist James Dale Davidson are just three of the more prominent voices in an off-Broadway chorus singing of calamity. The most pessimistic see a stock market crash as both inevitable and imminent. And they reckon it’ll be the mother of all meltdowns.
All point to the same root cause. The policies of low interest rates and quantitative easing (‘printing money’) that have been pursued since the 2008 financial crisis. This, they say, was mere financial alchemy — and it hasn’t worked. We’re living in an Alice-in-Wonderland world. Buoyant stock markets are an illusion. Debt is out of control, economic growth is faltering, myriad indicators are flashing red, and more financial crack cocaine from central banks isn’t going to prevent a collapse.
Uncharted waters
As an archetypal reserved Englishman, I have a natural aversion to histrionic messages of doom. Nevertheless, I find some of the bearish analysis compelling, and supported to a degree by more congenial, measured voices, such as that emanating from the staid office of 27 St James’s Place, London.
In the latest half-year results from RIT Capital Partners, chairman and veteran financier Lord Rothschild observed: “The six months under review have seen central bankers continuing what is surely the greatest experiment in monetary policy in the history of the world. We are therefore in uncharted waters and it is impossible to predict the unintended consequences of very low interest rates, with some 30% of global government debt at negative yields, combined with quantitative easing on a massive scale”.
Lord Rothschild has previously bemoaned the difficulties of allocating capital effectively in a world so distorted by monetary policy, and has said that the search for value “has become increasingly challenging. Almost every asset class is highly priced by historical standards …”
A rational way forward
It would be foolish to pretend that the world economy isn’t threatened by low growth and deflation, that we aren’t in uncharted waters with monetary policy and that a stock market crash isn’t a risk. However, over long time periods the stock market tends to favour optimists and frustrate pessimists. Furthermore, it can severely punish those who switch back and forth and get their timing wrong.
Here at the Motley Fool we believe that investing is a long-term business, and that for most investors ‘time-in’ the market, rather than ‘timing’ it is the best strategy. Sure, we may hold back some cash when company valuations are particularly high, and invest as much as we can when markets crash (as they invariably do from time to time), but building up our long-term wealth through good times and bad is the primary objective.
In this respect, our Foolish philosophy is aligned with that of renowned fund manager Neil Woodford. Woodford recently gave us his take on the market: “It is difficult to argue that the equity asset class is cheap any more, but there are still some tremendously attractive investment opportunities within it and my strategy is focused on pursuing these.”
Like Woodford, we at the Motley Fool believe that although uncertainty about global economic growth and monetary policies abounds, maintaining a long-term perspective and a disciplined focus on identifying sound businesses at attractive valuations is an eminently rational way forward.
