But, it also got me thinking about mean reversion; about the cyclicality of markets and the dangers that lurk within the phrase “this time is different”.
There is no doubt the world we now inhabit is very different to the one we knew back in 2008. At a macroeconomic level commodity prices were higher, as was wage growth. In the financial sector, banks’ proprietary trading arms were much bigger, their capacity to make markets (particularly within the bond arena) was greater and high frequency trading was yet to hit its straps. In the political sphere, extremism was less pronounced and decidedly less powerful and, at a social level, the dispersion between rich and poor was not quite as large.
And that is without mentioning the significant disruption technology has brought and continues to bring to all manner of industries.
The question for investors is, how much of this is here to stay and how much of it will eventually return to its previous form? In other words, how much of the world in which we now live is not normal, and how much is the ‘new normal’?
It is a particularly pertinent question in the context of the growth/value debate that continues to rage.
As Ben Whitmore, manager of the Jupiter UK Special Situations Fund said recently, “If you can’t find value in the current market, you are never going to be a value investor.”
But, he added, part of the reason for its underperformance in recent years have been the actions of central banks, that have propped up companies that perhaps shouldn’t have been propped up.
That value investors have underperformed for the past seven of so years has been well documented. What is less certain is exactly when, if ever, that trend will change.
