Despite continuing uncertainty over how the European debt crisis might play out, an American presidential election that is truly hotting up and no end in sight to the conflict in Syria, markets have held remarkably steady. Encouraging economic news out of the United States helped reverse a general slide on Wall Street that had taken some of the shine out of shares and, in the absence of disasters, investors felt able to creep back in.
But still nothing approaching an inflection point, as Psigma’s Bill Mott might put it, is in sight. In fact, this market is in real danger of becoming boring. Bulls and bears appear evenly matched and the same old themes are recurring with monotonous regularity. At times like this it is worth taking a step back to try to make sense of what the future might hold in store for investors.
Some things appear a given. Globalisation is irreversible, so the resetting of trade barriers looks unthinkable. That is not to say, though, that a level playing field exists across the world. China is quite capable of bending the rules to its own benefit, while the danger of a more insular US is ever present, particularly if there is a change of President. We might argue that it is in all our interests to pull together but in the end it rather depends on who is pulling the strings.
Then there is the seemingly unstoppable march of the emerging nations. This has been something of a two edged sword recently. China’s slowdown has unsettled investors – but it is still growing way faster than the developed world. And it is only the second largest world economy, after all.
Of more concern is the way in which countries like Brazil have slowed. The Olympics there are still a little way off.
But perhaps the most important development of recent years has been the growth in the importance of the professional investment manager in determining the direction of markets and the increasing reliance on market based investments to provide for an ageing population.
Back in the 1950s this was considered revolutionary. Today, with unfunded public employee schemes and so-called safe investments, like cash and gilts, yielding next to nothing, an increasing reliance on returns generated by professional managers has developed.
Arguably, professional management of securities is counter productive. While there are a wide range of mandates around in the investment world that demand differing approaches to the business of investment management, the tendency for managers to move, sheep like, in the same direction at the same time does little to calm markets made more volatile by technology and regulation.
But we are where we are and investors must learn to live with the realities of a flawed system that will be driven by more complex issues in the future.
As I have noted before, this should favour stock pickers as, with markets under the control of like minded active managers and computer generated trading systems, it will be attention to detail that will secure outperformance. Except that what works one year may not hold good the next.
Maintaining an edge over the opposition requires both belief and discipline. One of the most successful private investors I know happily concedes that from time to time he will miss out on what it is that is driving the market. But by conspicuous attention to detail and relentless research he comes out on top in the end.
Still, it would be nice for him – and all of us – if this market could once in awhile get a rush of blood to the head and break out upwards.
Brian Tora is an associate with investment manager at JM Finn & Co