"Always set your goals higher than you could ever possibly reach. That way, when you barely fall short, you're still better than everybody else."
-Carson V. Heady
The End of Indexing
This month’s Absolute Return Letter is the last before my book comes out, which is scheduled to take place on the 26th March (Exhibit 1). Writing a book has been a most enjoyable experience but, at times, also a terrifying one. More than a few nights have been saddled with bad dreams about my family being the only ones prepared to buy the bloody book!
Being new to this game, I have no idea what to expect, but I can guarantee you that I haven’t just written another Harry Potter. Even the best financial books sell only a fraction of what novels typically do. That said, how many should I expect to sell? I honestly don’t know, but I do realise that I am a nobody to the regular customer walking into a bookstore, looking for an interesting book on finance. If my surname were Buffett, more than a few punters would probably pick it up just because of that, but it isn’t.
My biggest audience are regular readers of the Absolute Return Letter, and that means you. If you enjoy my writing, I am sure you’ll find more than a few things of interest in the book. If you have no idea what it is about, I suggest you read the first few paragraphs of last month’s Absolute Return Letter. Although the book is not released until the 26th, it is certainly possible to order it already. You can do so here:
And now for something completely different
Until the 26th January, everything was plain sailing in global equity markets, and investors went to bed that evening, knowing that the S&P 500 had just closed at another all-time high.
The next day the tide turned, although losses were at first relatively modest. Having said that, in less than two weeks, nearly 10% had suddenly gone out the window.
What had changed so abruptly? Why this sudden pessimism? Why did investors turn negative only a day or two after being prepared to pay record high prices for equities? To begin with, allow me to go back to the quote I used to open my January letter with: “It is not bad economics that will send this market lower. It’s good economics.” (Quote: Kerrin Rosenberg, Cardano UK). At first glance, it certainly looks like a case of good economics suddenly turning into bad economics, so let’s dig a little deeper.
The box-standard explanation – and a more exact one
Every single attempt to explain the recent change in investor sentiment that I have come across argues along the same lines. Yes, economic fundamentals are rather good at present and, yes, those fundamentals are driving interest rates modestly higher, but there is a limit as to how much of a rise in interest rates equity investors are prepared to tolerate.