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Frequently, research on current trends in investment markets will show the last 20 years or so to prove that a trend is in place and to suggest that you should invest in that trend. For instance, if you looked at the last twenty years of the American sharemarket [stockmarket] you would see that it has gone up most of that time and, by implication, will continue to go up because that is the 'trend'.
However, if you look at long term trends you will get a totally different perspective. Sure, the American sharemarket went up from 1982 to 2000, but it went down from 92% 1906 to 1921, again 94% from 1929 to 1949, and again 74% from 1966 to 1982 - all in inflation adjusted terms. And it's quite obvious that it started another downtrend in 2000. Therefore, looking at the limited view of 20 years or so suggests we're in an uptrend, but looking at a long term view, of 100 or more years, shows that the market is in a major downtrend.
Socrates Fund Management uses long-term trends to develop the investment strategies for the 21st Century Renaissance range of unit trusts. We have noted that market trends tend to last 16-18 years and that when sharemarkets are trending up, commodities are trending down, and vice-versa [see chart below].
Therefore, our investment focus for the next 10-12 years is on commodities, including gold and other precious metals, industrial metals like zinc, copper, steel, etc., oil, and foods like coffee, corn, sugar, meat, etc. We will take direct positions in these commodities as well as buy shares in the companies that either produce or mine these commodities or in companies that support these operations (like equipment manufacturers or distributors).
Once we see the commodities markets peaking, which will come at a time when sharemarkets are bottoming, we will begin a transistion from a commodity focus to a sharemarket focus like we had in the 1980's and 1990's. Note: the lead fund manager for Socrates, working under a different system at the time, used these long term historical studies to predict the sharemarket crash of 2000-2003 and pulled all his then investors out of sharemarkets in September 1999, six months before the crash, thus avoiding all the losses incurred by those who were looking at the short term studies rather than the long term ones.
Generation |
Commodities |
Stocks[shares] |
Years |
1914 - 1930 |
-14% |
159% |
16 |
1930 - 1947 |
244% |
-30% |
17 |
1947 - 1965 |
-18% |
503% |
18 |
1965 - 1981 |
123% |
35% |
16 |
1981 - 1999 |
9% |
1054% |
18 |
1999 - 2016 |
+??? |
-??? |
17(?) |
Data Source: the CRB Commodities Index and the S&P 500 American stockmarket index, from Globalfindata.com
Note: the above figues have not been adjusted for inflation. If one were to adjust for inflation, the 35% positive return on stocks from 1965-1981 becomes -74% [negative] because of the high inflation during much of that period.
June was another volatile month though from beginning to end there were not major movements. Our funds all went down slightly although much of that was due to the rising New Zealand dollar during the month.