MARKET THINKING
Invest with Market Thinking in a UCITS global equity fund, developed in collaboration with Toscafund, a UK and HK-based specialist investment manager, harnessing the power of behavioural finance through thematics and factor ETFs.
The traders unofficial year end at Thanksgiving produced a lot of mean reversion including powerful short squeezes in Equities and bonds and even if they have run out of momentum they have catalysed cash to move into Equities and bonds, focussing the mind of Asset Allocators on the challenges for 2024, first and foremost being that they need to generate real returns and beat cash rather than simply hug it.
The Financial media was awash with deserved tributes to Charlie Munger last week. We wanted to add our own, short, tribute to the definitive long term investor, whose thoughts and wisdom are not only timeless, but also in a world of normalisation of interest rates are starting to come back into 'fashion'
Periodically, we take the opportunity to refresh our portfolio of Themes, incorporating new ideas to replace ones that that we think are no longing offering attractive risk return opportunities. We monitor the new ideas for a period, before incorporating them when we think the risk return is attractive, guided by our confidence scoring systems. As the risk return profile more generally has improved and as we reallocate cash back into our themes, we have added two new themes from our 'watch list' - Japanese Wholesale and Trading Companies and Emerging Markets ex China. The note provides more details and background.
This year has been all about the Magnificent 7 mega cap Tech Stocks, who have contributed 95% of all the S&P Return. But then so was last year, when they subtracted an almost identical amount in terms of Contribution to Return. So what for 2024? Those who bought in January were buying value in heavily discounted growth, an argument that doesn't hold this year. Many who bought in q3 were chasing momentum and/or short covering underweight positions. Neither of which are sustainable strategies. The story we are currently telling ourselves is AI, but that is going to have to translate into heavily superior earnings from here.
Behavioural Finance is about trying to take the emotion out of markets and investing, but markets are narrative machines and it is easy to get caught up in a plausible narrative. One way of countering this effect is to look for the emotionally effective but ultimately misleading use of Logical Fallacies. Here we provide a Bingo Card of the 25 most popular examples as well as an illustration of how a combination of Logical Fallacies can build a bandwagon narrative.
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