Don’t be a cow, be a bull

Much of what we fear is nothing new, says Ken Fisher

Shares should do well this year, maybe even better than in 2012. Don’t fear the many media-flogged phobias. Every bull market has risks, but most risks discussed now aren’t new. Today’s fears, in almost the exact same forms, have been rehashed for years – what I’ve referred to in the past as cows chewing cud. Markets are efficient discounters of widely known information. The more and longer something is discussed, the less forward market-moving power it has.

Investors still fear a disorderly eurozone implosion tied to the weak periphery’s debt. This fear is very long in the tooth now. Clearly eurozone officials don’t want the political fallout from a messy implosion. So they’ve shifted deadlines, compromised on austerity requirements and been flexible, usually at the last minute after much grandstanding.

A fresh global recession has been constantly heralded since the last one ended in June 2009, yet the world overall has grown for 14 quarters. Now the US “fiscal cliff” is resolved, a fight looms over the debt ceiling. This is pure cud – it’s been raised over 100 times in its history. Debt fears in general have been with us since the dawn of humanity.

In fact, these fears are bullish. Fear of a false factor is always bullish. Reality needn’t be sublime to boost shares higher, it need only be better than broad expectations. And reality is indeed better than broadly perceived. The world overall grew in 2012 and the US reaccelerated midyear. The UK has been sluggish and likely won’t return to rip-roaring growth until it loses some regulatory headwinds, but but even if a “triple-dip” recession occurred, it would only be a mild one.

Overall, 2012 eurozone gross domestic product will be down slightly but there will be pockets of strength such as Germany and France. China didn’t come close to the widely feared 2012 hard landing, while emerging markets overall grow briskly. Broad expectations are for moderate growth in 2013. Yet global air traffic – which is both economically sensitive and discretionary – is rising faster than GDP in almost every country. This isn’t Armageddon.

Corporate profits are at all-time highs, and firms are spending on big-ticket items, which is fuel for future growth. Incomes are rising, maybe not so much in Europe but certainly in emerging markets, where per capita incomes are entering territories consistent with big spending increases. In the US (and elsewhere), gridlocked governments can’t pass much bad legislation – an overlooked bullish factor. Valuations remain moderate and bond yields are exceptionally low. So where is a yield seeking investor to go? Equities.

When sceptics first buy stocks, they don’t pick little shares that nobody’s heard of

Ken Fisher

There is one place I see risk differently than most. The major central banks’ actions are contractionary, not inflationary – they are building bank reserves. But these actions flatten the yield curve and provide a disincentive to make new loans. This has kept money supply growth moderate globally since 2008, hence the lack of inflation. It’s amazing that the economy and markets have done so well despite the central banks’ backwardness.

In the 1990s, we called growth with low inflation the “Goldilocks” economy. But cud-chewing investors remain sceptical, as the late stock investor Sir John Templeton once said: “Bull markets are born on pessimism, grow on scepticism, mature on optimism and die on euphoria.” Investors aren’t overly pessimistic, but they’re still sceptical. There’s certainly little optimism and no euphoria.

So buy stocks, especially the roughly 70 megacap names worth £47.5bn or more each. This group outperforms increasingly and routinely as the back half of bull markets progress, because when sceptics first buy stocks, they don’t pick little shares that nobody’s heard of. They all know the high-quality global household names. Stay concentrated on those and enjoy a great 2013. Don’t be scared. Don’t be a cud-chewing cow, be a bull.

Ken Fisher is the founder and chief executive of Fisher Investments

Copyright The Financial Times Limited 2016. All rights reserved. You may share using our article tools. Please don't cut articles from and redistribute by email or post to the web.

More on this topic

Suggestions below based on Advice & Comment