Opportunity. According to Eminem it comes once in a lifetime, although thankfully for investors it tends to be a little bit more frequent than that (around every 10 years or so right after a market correction).
Now is one of those moments, however, when you may be seeing the word banded around frequently. Whether it be about the bond market, where yields are finally compelling for the first time in more than a decade, or in stocks, where markets have tanked and some mispricing has taken place, Warren Buffett’s quote about being greedy when others are fearful will undoubtedly make its way into your lexicon without you realising it.
Yet opportunity is something that is particularly hard to take advantage of right now, thanks to the cost-of-living crisis that is causing many of us to tighten out purse strings ahead of a potentially expensive winter.
Talking to a fund manager recently, they noted that this exact conundrum tends to happen with funds as well: when they perform poorly, investors pull their cash, but this is the exact time that they need money as the stocks they like are now even cheaper. Conversely, when performance is good, the companies they like are expensive, meaning there are fewer ideas and opportunities available, just at a time when they are flush with cash.
This may resonate with many at the moment who may see opportunity but not be able to afford it. This makes picking out the right opportunities with the money you can spare critical.
For example, it is fair to wonder whether the likes of Scottish Mortgage or other high-growth funds that have plummeted this year have gone too far.
Yet experts have been telling us that we are in for a decade or so of higher inflation, with the financial conditions since the global financial crisis consigned to the rear-view mirror for now.
As such, this could mean that they are indeed cheap, but are also not going to perform that well in the future if we do not return to falling interest rates, low yields and quantitative easing (none of which currently look likely).
Conversely, oil and commodities are flavour of the year, but these are extremely cyclical and tend to rise and fall depending on global growth (among other factors). Investing here therefore requires a big call on the certain events such as the Russia-Ukraine war and the zero-Covid policies in China, which continue to clog up supply chains.
Bonds and cash meanwhile have dropped like a stone and now offer yields not seen for more than a decade. But again, with inflation rampant, a 5% yield is still losing money in real terms. Is this the sort of opportunity that is too good to miss? Perhaps it will be in the future, but right now that feels like a bitter pill to swallow.
Unfortunately, my crystal ball is on the fritz, so I do not know if now really is the mythical once-in-a-lifetime opportunity.
Until I can get it working again, the best I can offer is to make sure you understand the risk you are taking and remember that the real danger is losing money to inflation.
If bonds and cash are your best bet at stemming those losses, then they are the right call. If you think that some of the fallen heroes of the past decade will come good eventually and have time to wait, they may also be the right decision. Or you could go with the stocks that have worked in 2022 in expectation that conditions will stay the same.
You may, of course, choose to do nothing. That’s the problem with once-in-a-lifetime opportunities, they are incredibly hard to spot. Otherwise we’d all do it.
In other news, Trustnet was awarded the Aegon Asset Management Wholesale Team of the Year award this week. It is a fantastic achievement by the team after such a challenging year.
I would like to thank all the journalists that have worked for us this year with special mention to our current reporters Tom Aylott and Matteo Anelli, who have worked tirelessly since joining.