Jonathan M Satovsky discusses how headlines and investor pessimism leads to flows into “safe” investments, equity outperformance over time in US and foreign markets, and planting seeds for the future.
Good afternoon. This is Jonathan Satovsky of Satovsky Asset Management. September 5th 2019 with a video blog update.
Today I wanted to get us back out of the short-term looking out on the horizon.
So in my inbox this morning, I see “investors pull another 1.2 billion dollars from UK equity funds as Brexit continues to bite.”
So headlines have clearly got people’s attention.
According to a report from Vanguard, the 12-month inflows into money market funds have been 400 billion dollars. One of the strongest inflows in memory in people’s desire for safety. And every bit of data continues to prove that out.
In fact, investors have been on the most pessimistic side in terms of their decision making with their capital allocation decisions.
Of course, if you read the headlines it’s no wonder; it has led to the continued sentiment of close to 70% of people being pessimistic and or negative or neutral about the future.
So, let’s roll back again to the evidence and get people out of the short-term and give back to the evidence, because in terms of the probability of people’s success we want to stack the odds in your favor for a lifetime of abundance.
So, when we look at the probability of success, owning assets, owning equities over a long period of time, 70% at a time and they will outperform the safe assets.
Of course it comes with the yo-yo effect, if you look at the graph behind me there’s been double-digit returns over the last you know, 70, 80, a hundred years, but it comes with a log of zigging and zagging which makes it more difficult for people to see the horizon.
But over a 5 or 10 year period, the odds are materially in favor of equity owners.
And, of course, you know we go through further evidence that value and historically has done a little better.
But then growth and small has done better than large and profitability has done better than less profitable companies.
That’s the U.S., here’s a quick glance outside of the U.S. – this works in developed markets and it has worked at emerging markets as well.
So, it’s fascinating that the headlines cause people to react in the short-term. And, it’s no wonder because the recency bias, just looking at barrons, you can see the visual of the markets last year, it has been a tumultuous year.
Oh my god, everything’s great. Oh my gosh everything’s terrible.
Everything’s great. Everything’s terrible. Everything’s great. Everything’s terrible.
So, this last year or two has left people feeling like they may not be making progress. But just think about it as planting seeds for the future.
Planting seeds. Planting seeds. Planting seeds.
So with that, I want to remind people that the benefit of the desire for safety as it has driven rates down extraordinarily low.
Negative yields in foreign countries and likely to be very low yields if not negative yields potentially in the future in the United States.
And what does that mean for long-term thinkers?
Well, if I can borrow money at a very very low cost to buy a home, start a business, take risk, use unique talents, skills and abilities to be able to come up with a new innovation, it leads to a tremendous progress that people can’t even imagine.
So it takes tremendous amount of imagination and utter confidence that the future is always going to be better than the present.
So have a great week and a great start to the school season.