The returns to NORM

VedsInvest Fund1  - 2 May 2015

General Thoughts –

I recently read a report from Gavekal, one of the few investment advisory firms that i like reading. They tend to focus on big picture issues and then narrow down their focus. Another one of those costs that i will need to cater for when i start my own firm on top of my Bloomberg.

In this report, the author highlighted that the average return from 1965 to 2012 in the S&P 500 was around 10% and the expected returns was between -10% to 25%.  Since 2012, though the average return has been 16% with returns from +9% to 25%. They argue that this is primarily from the intervention of central banks that push liquidity to ensure financial markets remain steady and growing.

I am not sure whether they are completely right but there is some truth to what they say. But the bigger take is – Can we expect returns to maintain at 16% when historical averages are at 10% OR should we expect corrections to bring long term averages back to norm.

Again the answer is not that easy. But if the question was “In the long run, should we expect corrections to bring long term averages back to norm?”. Then my answer is a resounding yes. But in the short run, looking forward the next 2 or 3 years, i am unsure.

As such my strategies remain the same, looking for stocks that have good growth prospects, a relatively strong balance sheet and a good track record. I suspect this strategy will do relatively well as markets go up BUT hopefully will outperform significantly when markets go down. Only time will tell. 

VedsBlog @ 2 May 2015