8 January 2020

Is the crowd always wrong?

So here we are at the start of a new year and a new decade – the third of the twenty first century.

It is a little hard to reconcile the fact that the world’s largest companies are now the technology titans, while recalling that just twenty years ago the so-called TMT (Technology, Media and Telecoms) bubble was approaching the point of maximum inflation before collapsing in a spectacular fashion. Few then could have forecast the resurgence of this sector, though it is interesting to note that technology funds have not led the pack of performers in the first two decades of this new millennium.

What might markets have in store for investors in the months and years ahead? Well, the year got off to a shaky start, thanks to the heightened tension in the Middle East following the escalation of the conflict between the US and Iran. Oil, unsurprisingly, spiked upwards while investors fell back into risk off mode – at least temporarily. These events serve as a reminder that geopolitical issues can undermine confidence, regardless of how well underlying economic performance is shaping up.

Not that there is much of cheer on the economic and business front. Trading statements from leading conventional retailers are suggesting a difficult Christmas for the high street and the big four supermarket chains, while global growth continues to be muted, though thankfully still positive. Our own economic progress will depend to no small extent on the outcome of our Brexit negotiations – and we may have to wait a little while to see how these pan out.

The beginning of a new year generally brings the forecasters out in force. On this occasion most of the predictions I have read seem disturbingly similar. Continued low growth, low inflation and low interest rates appears to be the broad consensus. Yet 2020 will have some inflexion points that could change the environment for investors. Aside from Brexit, it is a US Presidential election year, while North Korea and Iran could still throw a spanner in the works.

It worries me when the great and the good come together in predicting what we investors might expect for the future. I know it’s only a guess on their part, though often supported by complex computer programmes designed to ensure all likely outcomes are taken into account. But as John Maynard Keynes once remarked, there are two kinds of forecasters – those that don’t know and those that don’t know they don’t know. Forecasting is a mug’s game anyway, so I think I’ll just sit and wait to see what transpires.


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