With a structural change to the economic and financial landscape, the options are hope for clarity, invest into exiting positions or explore the possibilities.
Does history really provide a guide on how investment markets may perform? There is a cacophony of statistics on how far equity indices fall before bottoming, or comment on the unusual drawdown in fixed income in the first half of this year that is unlikely to be repeated based on past data.with no history or private equity with a curated set of data of survivorship bias that ignores all the long forgotten failures. History can be kind or unkind depending on what data is used as evidence.
There are many publications on long-term trends, one of the best being the annual Dimson, Marsh and Staunton report that reinforces the interaction of economic data with investment patterns. This, however, does not lend itself to a forecast and the evidence is that returns in past cycles may have little resonance in coming years.
Take Zoom as an example. Its recent performance may be largely a function of its lack of competitive advantage, relatively easy to replicate at lower cost. Regardless of interest rates, that was overdue. That also applies to the plethora of companies associated with COVID-19 and shorter-term behavioural patterns.
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