Well, if you exited the market in October 2007
and, most importantly, re-entered on 9th March 2009
and then exited in early Feb 2020 (before any word of Covid) climbing back in on the 23rd of March 2020
then I’m impressed and you have my full attention
Of course, you’ll need to nail it 100% again
Because it’s no good selling at the top, (which you’ve already missed)
and then not buying back at the very bottom, because you absolutely HAVE TO get both legs right
And even if you nailed the Sell, you’ll probably suffer the same fate as most bears
Which is?
They always think there’s more downside ahead so never buy back in at the right time
But the good news is that even after this horrible year (for most), the World Index is up 10% since before Covid and 58% on the Great Financial Crisis
So why bother?
Because not even Nobel Economists can accurately call recessions,
In 2008 the American Enterprise Institute analysed comments by Nobel Laureate Economist, Paul Krugman and concluded he “called 9 of the last none recessions under Bush Administration”
What do you mean he called, “none”?
He foresaw recessions that never materialised as recessions – ghostly recessions, not ghastly recessions
Imagine selling because you’re worried the market will fall
but then it doesn’t and keeps rising,
now, what do you do?
But he’s not alone – Nouriel Roubini, the famous Economist who is credited with calling the housing crisis and crash in 2008, predicted Covid would lead to
Not a “V shaped” recession – where you fall sharply and recover sharply
Or a “U shaped” recession – where you fall, bounce along the bottom and then recover
No; he called an “I shaped” recession – where you fall and there’s no recovery
Are you falling?
But on what date did he make this prediction?
at the 2020 market bottom…
You see recessions are part of the cycle
In the last 50 years (200 quarters) in the US, there have been 27 quarters of negative GDP growth
But the US stock market was only down in 52% of these quarters
In 2014, Historian economists, Dimson, Marsh and Staunton (DMS) studied the relationship between long-term stock market returns and long-term GDP growth cross-section of 21 countries from 1900 to 2013 and found, “evidence linking equity returns to GDP growth was weak”
Simple rule – if it’s ON the front page, it’s already IN the price
So if we can’t forecast recessions
and there’s no link between GDP and equity growth
Why bother?
Just find a manager who has a margin of safety built into their process so you can stop worrying about any recessions – ghosts, or otherwise
But how do I know if my manager worries about the “margin of safety”?
Well, everyone this year seems to be worried about a recession
so a quick look at their performance will tell you…