Here’s Why Investors Shouldn’t Worry About Stocks…

The financial world is a tale of two halves right now.

One half is optimistic about the future.

The other half is worried about the future.

You know where we stand. We’re bang at the forefront of optimism.

Not because we’re hopelessly ignorant of the world around us. Far from it.

Rather, it’s because we know exactly what’s going on. And because of that, we know the best way for investors to play it…

But it’s one thing to be optimistic. It’s something else to be downright delusional.

And trust us, there are plenty of delusional investment professionals out there.

Those are the folks who really don’t have a clue what’s going on.

They either think everything is just fine because governments and central banks have saved the day, or they think the market is going through a bit of a rough patch, but things will return to normal soon enough.

But things won’t return to ‘normal’. The world economy is changing. And if those folks don’t realise that, they’re in for a big surprise.

Don’t get lost in the ‘ennui’

Humans are naturally bad at predicting change.

That’s not to say that humans can’t adapt to change, because they can. Arguably, humans are excellent at adapting to change.

But predicting change and adapting to it are different things.

Most people find it hard to predict change because it’s hard to see things changing around you when you see them all the time.

For instance, when you see your kids every day, you don’t notice how much they’re changing. It’s only when you see a photo of them from a year ago and compare them to today that you can see the change.

That’s why — don’t be offended — most investors make lousy investors. They see that things turned out fine in the past and so they assume things will be fine in the future.

And when we say ‘most investors’ we’re not just talking about the average private retail investor.

We’re talking about investors of all shapes and sizes, including the biggest of the big fund managers.

An example of this was a report from Bloomberg quoting one of the top research boffins at HSBC:

‘“There is an optimism bias, largely reflecting an attachment to pre-crisis growth trends which, post-crisis, have mostly remained out of reach,” according to a report published last week by the team led by Stephen King, HSBC’s global head of economics and asset-allocation research. “Our latest projections are consistent with this sense of ennui.”’

Perhaps like us, you use ‘ennui’ all the time in conversation too!

OK, we admit it. We had to look it up. Ennui means ‘a feeling of listlessness and dissatisfaction arising from a lack of occupation or excitement.’

Blimey. That’s depressing. Things aren’t that bad are they?

Investing is predicting

According to Bloomberg it has been a tough few years trying to predict the markets:

‘[HSBC’s] economists found that since the crisis their industry’s average estimate of inflation proved off by at least 1 percentage point in the U.S., U.K., Sweden and Spain and by 0.7 point in German. Those are big misses given that most major central banks target 2 percent inflation.’

Oh dear. The life of a forecaster.

But we shouldn’t mock. Making predictions is a big part of investing. You’ve got to predict. Otherwise, you can’t invest. Every investment you make is the result of a prediction.

You buy a stock because you predict it will go up. You sell a stock because you predict it will fall. But here’s the thing: It’s impossible to get every prediction right.

It just can’t happen. Sometimes you’ll get things wrong. That’s all a part of investing.

We don’t even need to go into detail about why they’ve got things so wrong. It’s simple. They’ve failed to see that the market is changing. They’re looking for opportunities in the wrong place.

There may be plenty of ‘ennui’ in the US, UK and Europe. But there isn’t much ‘ennui’ where we’re looking.

Things are pretty exciting in some areas of the market…

This boom hasn’t even started

It just so happens that another story on Bloomberg shows the HSBC analysts where they should really focus their attention:

‘Emerging-market stocks rose, posting the biggest quarterly gain since 2012, as signs of a revival in economic growth lured investors. Bulgarian stocks surged the most in the world, rebounding from last week’s five-month low.

‘The MSCI Emerging Markets Index advanced 0.4 percent to 1,050.78 in New York, extending its increase this quarter to 5.6 percent. The measure has risen for a fifth month, the longest rally since 2007.’

Really, who cares about Swedish inflation rates when you’ve got exciting stories and opportunities to tell in emerging and frontier markets, the tech sector, biotech sector, and even energy stocks?

They would be better off forgetting the inflation forecasting game and look at exciting economies, sectors and companies. They should try to get inside these subjects to find out the strengths and weaknesses.

What is it about the economy that could make it boom? What is it that could cause it to go bust? And most importantly, if you make an investment in the market aligned to that economy, what kind of returns could you make?

If it’s a high growth emerging markets economy, such as China or India, then you’re looking for a big return. If history is anything to go by (as we’ll illustrate in the Megatrend Master Series) then the biggest gains are yet to come.

Look at the opportunities. Take China. The US economy grew for another 124 years after it gained the top spot as the world’s biggest economy from Britain in 1890.

China’s economy only really began to motor in the 1990s. It’s still only half the size of the US. How can that not be an opportunity?

And the mainstream wants you to believe China’s economic growth has ended.

Give us a break. This boom hasn’t even started.

Cheers,
Kris+

Read the rest of this article at Money Morning