2023-07-21 Markets

Economic news was mixed last week, with China growing below expectations and inflation moderating. Markets continued to have a good run, especially equities. — As always in these cases, it’s interesting to observe the change in investor psychology. Emboldened by the relentless run of positive figures, they have increased exponentially their courage and wasted no time in showing their willingness to take on more risk with their portfolios. If they exhibited a prudent or moderate mind-set at the beginning of the year, after that horrible 2022, by today with equities up about 12% (in Euro terms) inebriated investors are ready to toss out of the window their chosen investment objectives in pursuit of extraordinary but uncertain gains. The adrenaline leads them to look at everything with rosy glasses and they easily fall prey to the annualization syndrome: ‘12% year-to-date is 24% annualized! actually if I annualize the last three days I’ll be Bill Gates at the end of the year!’ — I’m simultaneously amused and saddened by these reactions; it’s funny to observe how easy it is to make people happy and at the same time I know the whole thing is bound to end in tears and recriminations. Just as the upswing is likely to lead to disappointments if the portfolio is not leveraged to the hilt, the corrective phase of the market will require great self-control unless the portfolio has been magically pivoted into a full cash position. Someone tell me again why I like my job, please?
Cover: Gary Larson, The Far Side