Market commentary: Oct 2024
Investment news and performance
Looking at the year to 31 October investment returns have been strong and once again international equities were the standout performer. Australasian shares have also done well. However, US share market sentiment is turning pessimistic, and US shares are expensive. This indicates that it’s a time to be more conservative. Accordingly, we recently trimmed exposure to shares by 2% and are considering a further reduction of 2%.
The US election? Well, the American people have certainly spoken! The US share market and US dollar have both jumped. It’s likely global share markets will be volatile until things become clear – if that’s possible under a Trump presidency. Interesting times to say the least!
Interest topic: Fads, Trends, and Megatrends
What’s the difference and why does it matter for investors?
Fads are examples of the get-rich-quick mentality that humans are so susceptible to. It’s easy to be drawn in by the excitement of ‘investments’ based on a simple concept and much hype. Investing in this way is speculation at best.
Fads are rarely based on sound fundamentals, and they are likely to collapse with little warning. Recent examples in New Zealand are Angora goats and the Mohair boom, olive growing and olive oil, Alpacas, and Truffles.
Trends last longer than fads and possess sound reasons for their being but have quite narrow and specific themes. Like fads however, they also require supreme entry and exit timing. Often, once a trend takes off, most of the opportunity gain may have passed.
The Dotcom boom is a great example of a trend. It lasted a few years and prices ballooned way beyond value. The bubble burst spectacularly in 2000.
Megatrends are much bigger, longer lasting, and game changing across industry and society. For these reasons they can deliver far more for investors over time - and with less risk.
A great example is the contactless payment megatrend. No matter how many people jump up and down about the disappearance of cash in commerce it is ultimately going the way of shells and beads. Unavoidable, unstoppable and inevitable.
The trick is to identify the opportunities and the companies that will be winners. Visa and Mastercard are great examples of companies that have profited from contactless payment megatrend.
Other megatrends include:
Artificial intelligence
Decarbonisation
The silver economy (aging population)
Understanding the difference between fads, trends and megatrends matters for long term investors. Our fund managers put a lot of thought into avoiding fads and trends and identifying megatrends. This requires discipline and rigorous process and not getting caught up in market hype.
Richard Grimes, CERTIFIED FINANCIAL PLANNER (CFPCM), Director and Financial Adviser