e-fundresearch.com: What are your personal lessons learned from 2014 market developments?
Eric Robbe: The biggest lesson to take away from 2014 is a familiar one. Don’t try to time market tops and bottoms. That strategy cannot work in the long term because no one has a crystal ball. Pick an asset allocation that’s right for you in the long term and stick with it during all market conditions. Most of equities markets ended up in positive territories despite sharp downward movements in October and December 2014.
To illustrate the point, roll back to the beginning of 2014 when New Year’s predictions were being made for the economy and capital markets. Central to most of these predictions were the anticipated actions of the Federal Reserve. In late 2013, the Fed announced that it was going to phase out its purchases of Treasury and mortgage-backed bonds in the coming year. The bond-purchase program had been originally undertaken to stimulate the sluggish post-2008 economy by injecting more liquidity into the system.
Hinweis: Eric Robbe (Laffitte Capital Management) ist Speaker beim
ARC Outlook 2015 am 21. Jänner in Wien
Many prognosticators believed that the Fed’s decision to reduce, and ultimately end, quantitative easing in 2014 was tantamount to party crashing, economically speaking. Interest rates would rise in 2014, bringing down a long bull market in bonds and stocks. Others anticipated a resurgence of inflation as a result of all the money the Fed had pumped into the system. This, in turn, would increase the prices of commodities and inflation-protected bonds.
All were reasonable predictions for 2014, based on macroeconomic theories of supply and demand. For example, it is very interesting to read oil specialists predictions in January 2014. Absolutely none of them predicted the WTI or Brent prices around 50$ a barrel at the end of the year.
So the first lesson is: even if you trust into the consensus, don’t take things at their face value.
And second lesson: in a such volatile markets, key words are always discipline, risk management, diversification and finally…humility.