"Bull-markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria.
- John Templeton"
The End of Indexing
Before I go into this month’s topic, allow me to share something with you that has dominated my life over the past two years.
I have just finished my first book (… and also my last, according to my wife! ). Harriman House – the UK’s leading independent publisher of investment books – will be publishing it and, if everything goes to plan, the book will be released on the 26th March. At the moment, I am like a child, just about to open my first Christmas present.
I have chosen to call the book The End of Indexing. Indexing – i.e. passive investing – is clearly the flavour of the day. It now accounts for around one-third of the total US mutual fund market and continues to grow rapidly – both in the retail and in the institutional sphere.
The trend towards indexing appears to be unstoppable but, in The End of Indexing, I present a different vision. I argue that, in the economic environment we are entering, indexing is not the way to go.
I identify six structural mega-trends that are set to disrupt investors around the globe:
- The End of the Debt Super-Cycle
- The Retirement of the Baby Boomers
- The Declining Spending Power of the Middle Classes
- The Rise of the East
- The Death of Fossil Fuels
- Mean Reversion of Wealth-to-GDP
In conjunction, those six trends have the potential to create conditions resembling the perfect storm, which will result in low economic growth for decades to come. Investment techniques and methodologies – including passive investing – that have worked so well in the bull market of the last 35 years will no longer deliver acceptable returns.
I don’t discuss the shorter-term cyclical outlook at all (which is pretty good). The focus is on those six structural trends, and I argue that a new investment approach is called for. The End of Indexing provides investors with a guide to the challenging environment ahead.
Next month I will provide links to a couple of websites where you can buy the book.