30 years ago information was the difference, it was slow to disseminate and difficult to find, those in the know first often profited substantially.
Today the opposite is true, there is almost endless information, commenting from multiple news channels and a general cacophony of noise, the key is to be able to filter out the sound and fury and to identify the differences that will make a difference.
In a sense the old maxim of KISS, keep it simple stupid is even more true today.
Two interesting metrics
The current levels of yields on ‘safe’ sovereign credits are at historic lows, yields on 10 yield Gilts (UK), Bunds (German) and Treasuries (US) are at or below 2% (i.e. negative in inflation adjusted terms).
By comparison the dividend yields on the FTSE 100 and S&P 500 are at their highest levels when compared to Sovereign in the last 42 years (they only exceeded current levels at the height of the 2008 crisis).
In addition the difference between averaged corporate profits and the treasury yield is now at a 52 year high.
What does this tell us
- There is a huge ‘fear’ still in markets (with justification)
- That medium term owning gilts, bonds or treasuries is likely to be a very bad strategy
- Equity markets are cheap in historic terms assuming that corporate profit levels remain at least at current levels going forward
Seeing such supportive data is not in itself a guarantee that now is the time to buy equities but it is a good indication that prices of equities are favourable for investors and provide the potential for attractive returns.
One of the most difficult disciplines of investing is to buy when others are scared; one of the ways to help this is to focus on a small number of key metrics which illuminate the value in the market.
It is likely that the medium term for outlook for equities are as attractive as they have been in decades, the metrics illustrate this, the sound and fury tends to obscure this behind the smoke of the daily battles
NOTE: This is written in a personal capacity and reflects the view of the author. It does not necessarily reflect the view of LWM Consultants. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. This is not a recommendation to buy any product or service including any share or fund mentioned. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.