2023-06-09 Markets
Emerging market equities were the star of the group this week (+1.3% in Euro terms), reflecting perhaps a renewed enthusiasm for global growth prospects. Otherwise most of the non-financial news ranged between the hopeful (Trump’s indictment) and the horrific (Russian attacks on flood victims).
Investors talk about 3-4% from cash or of similar yields from short to medium term bonds as a good opportunity. But I see little discussion of the logic behind this when Eurozone inflation is at 6-7%. If it dips to 2-3% by this time next year it will still average 4-5% over that period, which means losing real money for at least one year, if not longer. Not many realize you can easily earn 0.5-1.0% in real terms with some index-linked securities.
There is also a craze for investing in bond portfolios with fixed maturity, an obvious psychological crutch to help heal from the toxic experience of 2022: if held till maturity the portfolios don’t lose, nominally, money. Such portfolios should be purchased only to fund a specific liability in the future.
eToro, the online trading platform, declares in a commercial that ‘Originality is overrated. Smart people copy smart people.’ It sounds catchy, but it’s stupid. First, if many people copy a portfolio the only one getting rich for sure is its owner. Second, there is no assurance past performance will continue in the future. Third, why copy only ‘smart’ people? ‘dumb’ people can be useful too: just ‘copy’ the opposite of what they do. True smart people probably mind their own business and pay little for investment services.
[Cover: Image from eToro’s advertisement.]
Investors talk about 3-4% from cash or of similar yields from short to medium term bonds as a good opportunity. But I see little discussion of the logic behind this when Eurozone inflation is at 6-7%. If it dips to 2-3% by this time next year it will still average 4-5% over that period, which means losing real money for at least one year, if not longer. Not many realize you can easily earn 0.5-1.0% in real terms with some index-linked securities.
There is also a craze for investing in bond portfolios with fixed maturity, an obvious psychological crutch to help heal from the toxic experience of 2022: if held till maturity the portfolios don’t lose, nominally, money. Such portfolios should be purchased only to fund a specific liability in the future.
eToro, the online trading platform, declares in a commercial that ‘Originality is overrated. Smart people copy smart people.’ It sounds catchy, but it’s stupid. First, if many people copy a portfolio the only one getting rich for sure is its owner. Second, there is no assurance past performance will continue in the future. Third, why copy only ‘smart’ people? ‘dumb’ people can be useful too: just ‘copy’ the opposite of what they do. True smart people probably mind their own business and pay little for investment services.
[Cover: Image from eToro’s advertisement.]
