The certificate below attests that my strategy has been profitable for 4 years in a row. Over this time, the strategy has returned +126%, or 22.6% per year.
There is, however, always a danger in dwelling on past successes. It may be, and often is, the case that a strategy simply benefited from a favourable environment. Any Tech or crypto investor, for example, should have posted a great past 5 or 10 years. That does not mean that today is automatically a good time to invest in Tech or crypto.
It is always more important to focus on future return expectations, not aggressively marketing a past track record. And long-term future return expectations are largely driven by valuations.
It is therefore positive that today, valuations in the areas I focus on remain reasonable. The future, at least in relative terms, may be more exciting than the past.
As most people know, the stock market of the past few years has been led higher by US stocks, which now make up 70% of world market capitalisation.
awealthofcommonsense.com/2024/12/u-s-markets-are-swallowing-the-rest-of-the-world
US stocks did so well because US budget deficits boosted the economy, US economic policies were better than competitors’, and US superstar tech firms enjoyed monopoly positions in their fields.
www.morningstar.com/stocks/us-stocks-have-outperformed-world-history-shows-that-success-can-be-fleeting
Investors took note, adding $1.2trn to US stocks since 2020, against only $0.2trn to those in the rest of the world.
https://x.com/neilksethi/status/1883175496025887052
The result of all this buying of US stocks is that the US has become one of the most expensive stock markets globally. Notes Larry Swedroe, “Unfortunately, being subject to recency bias, many investors tend to buy what has performed best in the most recent period […] and sell what has underperformed […]—the exact opposite of the Investing 101 motto of ‘buy low, sell high.’”
Because of their expensiveness, US stocks now have low future expected returns. They can be expected to return 1% a year after inflation going forward, compared to 6-7% a year from the stock markets of more attractively valued countries.
www.linkedin.com/pulse/sector-adjusted-global-stock-market-valuation-outlook-keimling-ueq3e/
In the past few years, my portfolio has been constantly underweight the US. This has acted as a headwind for returns, but there are good reasons to believe it will turn into a tailwind going forward.
A reversal could happen if the US budget deficit becomes a live issue for the markets, if US superstar companies start to face more global competition (the DeepSeek news over the weekend being an example), or if Trump’s unstable policies lead to a weaker US economy and a strong fiscal and monetary response from Europe and China.
In the long run, it is hardly credible that a country making up 25% of world GDP can command a 70% share of world market capitalisation. The portfolio has little US exposure because I believe higher returns can be obtained from other countries.
𝟮𝟬𝟮𝟱 𝗽𝗲𝗿𝗳𝗼𝗿𝗺𝗮𝗻𝗰𝗲
@triangulacapital +3.1%
SWDA.L +4.0%
𝗣𝗼𝗿𝘁𝗳𝗼𝗹𝗶𝗼 𝗰𝗵𝗮𝗻𝗴𝗲𝘀
RWE was replaced by Itau Unibanco.
