2017 was noted for its lack of volatility, and this can be seen strongly in the performance of global equity markets. For the first time, global equities (based on the MSCI ACWI’s 30 year history) saw a rise in every month of the year. The US market (S&P 500), while not posting a rise every month, saw a positive return every month once dividends are included, the first time since 1958. The largest fall for the US market intra year was 3%, which is the smallest intra year fall in any calendar year in the post war period.
Another area of note were signs of , most notably with the interest in cryptocurrencies. Bitcoin saw a rise of 1,300% and created billionaires of the Winklevoss twins, who were previously known for claiming Mark Zuckerberg stole their idea for Facebook. It was also reflected in the art world, with a world record $US450m paid for Leonardo Da Vinci’s Salvator Mundi, shattering previous records – over double the previous record for a painting sold at auction and a third higher than the highest private sale.
So after a record breaking year, it is worthwhile reflecting on what lessons we can learn from last year.
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The first is that this job is hard. While it’s easy to look back and identify what you should have done, it’s much harder to make decisions in real time, looking forward into a future that is in large part unknowable. While technology means we can now process more data better and faster (and as a result have better back tests) it doesn’t change the fact that the future is inherently difficult to predict. Being wise in hindsight is popular but unhelpful.
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Find out why the market generally discounts the true value of cash and why cash has several very useful characteristics that make it valuable in portfolio construction.
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In contrast to what is a relatively benign macro outlook, the starting point for key markets is more problematic. Thus achieving high real rates of return by simply hoping for strong underlying market performance would be optimistic.