Conditioning For Lower Returns

Most of the investing world measures annual performance at the end of December 31st.

The media and pundits make themselves seem clever by reporting what has already happened.

You must remember that they are reporters and not market professionals or investors.

What is the difference?  

Journalists and commentators seldom (if at all) take any risk with their own or while advising and managing other people’s money.

While it’s informative, it’s not visionary and it doesn’t help anyone’s past nor prepare anyone for the future.

What is more important that simply reporting the past 3 years of performance figures….

S&P 500

2019 29%

2020 16%

2021 27%

Nasdaq 100

2019 36%

2020 50%

2021 27% 

…..is to ponder what to expect in the coming year or so.

While that prediction is impossible, the best guidance I can offer readers is that these type of returns are not to be taken for granted and certainly not to be extrapolated or ‘banked on’ in the future.

It’s more plausible to expect 2022 numbers to come in at +7% or (5%).

Consider conditioning oneself for lower returns.

Why?

Unscientifically;

Winning streaks come to an end,

Many think it’s their god-given right to earn 20% every 2 months, 

Those type of returns are extraordinary when compared to the cash rate,

Persistent extraordinary performance are eventually subdued,

Elastic Bands and Pendulum snap back and 

When I posed an investment idea which I thought may provide a 15% return over the next 18 months, the investor responded with “it’s hardly worth making that investment for such an average result”.

Mathematically, we may argue whether earnings expand, investors pay even higher prices for those future earnings or what has been or isn’t already factored or discounted.

Meanwhile the ASX 200 Index performance has been;

2019 19%

2020 (2%)

2021 13%

January 3, 2022

by Rob Zdravevski

rob@rkarriasset.com.au