The Ghosts of Investing Past, Present and Yet to Come

Once upon a time—of all the good days in the year, on Christmas Eve—old Ebenezer Scrooge sat busy in his counting-house. But we’ll leave Scrooge there, with Bob Cratchit and the ghosts of Christmas Past, Present and Yet To Come to keep him company. We have our own ghosts to deal with.

So rise from your bed, O Investor. And hear first from our Ghost of Investing Past, Erik Ristuben, our Chief Investment Strategist, who, even though he rarely wears a waistcoat, bears a remarkable resemblance to Old Fezziwig:

Shrouded in the grief of the past are the traumatic events that make us who we are as investors. As human beings, we remember pain more than pleasure and bad times more than good times. As investors, the bad experiences of the past shape our view of markets significantly more than the good experiences.

For most of us boomers, the two events that stand out the most are the bear markets of the 2007-2008 Global Financial Crisis (GFC) and the popping of the Tech Bubble in 2000. Both were painful. But the causes of that pain were very different. In the tech bubble, the significant market pain was caused by stock valuations that were in the stratosphere. Finally, the market awoke from its cheap-money stupor to realise that profits and valuations did actually matter, even though the recession associated with this bear market was short and shallow. That realisation, combined with some questionable governance (such as the examples of WorldCom and Enron), drove the S&P 500 down almost 50%. And that time, value stocks dramatically outperformed growth stocks.

The GFC was different altogether. Although stocks were not cheap in 2007, the real pain was caused by the massive economic imbalances due to U.S. consumers’ use of debt to fuel an unsustainable level of consumption in the 2000s. Not only did consumers have too much debt on the books, but so too did the banks. The massive economic disruption of the longest and deepest recession since the Great Depression drove stocks down, as investors feared for survival of the system itself. Again, stocks fell dramatically, with the S&P 500 falling 40+%1. This time, however, growth stocks outperformed value, as bank and energy stocks were particularly hard hit by the market turndown.

The lessons to take away from this is that although the root cause of any given bear market’s pain may differ, three things remain the same:

  1. Bear markets are painful
  2. Valuations and the severity of the recession matter
  3. Diversification matters

Dickens said his Ghost of Christmas Present was “clothed in one simple green robe, or mantle, bordered with white fur.” Let’s check in with our Ghost of Investing Present, Van Luu, Head of Currency and Fixed Income Strategy, who prefers gray suits and striped blue ties:

Economic and company profit growth have slowed sharply this year, compared to 2018. We all watched as Boris Johnson became prime minister and took Britain to the brink of a no-deal Brexit (proroguing Parliament in the process), while U.S. President Donald Trump escalated the trade conflict with China. The U.S. yield curve even inverted, which has been a good predictor of recession. In other words, there was plenty for markets to worry about, right?


The U.S. Federal Reserve (the Fed) came to the rescue. Jerome Powell and Co. cut interest rates three times in the second half of 2019, supporting equities and bonds. The no-deal Brexit was all but taken off the table, as Britain agreed to a revised withdrawal with the EU. Although the U.S. and China will be strategic adversaries, U.S. election calculus makes improving trade relations between the two countries the more likely outcome, as seen in the phase one trade deal the two nations recently agreed to.

So what’s the summary of 2019?

Nearly all assets are up. U.S. equity markets returned approximately 25%. U.S. government bonds returned approximately 10%. Italian government bonds had returns of more than 15%, with emerging markets bonds returning more than 12%. Oil? 15% returns. And gold returned 11%.2

This ghost is tempted to say, “Don’t worry. Be happy.” But that sounds more like Bobby McFerrin than Charles Dickens. And we still have the future to contend with.

When the Ghost of Christmas Yet to Come visited Scrooge, “it did not speak, and its mysterious presence filled Scrooge with a solemn dread. ‘Am I in the presence of the Ghost of Christmas Yet to Come?’ said Scrooge. The Spirit answered not but pointed onward with its hand.”

Our Ghost of Investing Yet to Come is Andrew Pease, Global Head of Investment Strategy. Andrew is a bit more chatty, and slightly more optimistic:

Those who cannot remember the past are condemned to repeat it. It’s the future, and we find our investor writing a careful budget for the December festivities, while reflecting on (and regretting) the investment decisions of Christmases past:

December 1998 – Finally took the plunge. Bought stock in WorldCom, and!

December 1999 – My portfolio’s doing really well. Time to top up!

December 2001 – I’m a long-term investor, we must be near the bottom.

December 2002 – It was all a terrible mistake. I’m not meant to be an investor.

December 2006 – The S&P500 is headed toward 1500! I’m back in the investing game and this time it’s long-term.

December 2008 – Why won’t I learn? The market is not the place for people like me. At least cash doesn’t go down.

December 2017 – Shares are too risky, but Bitcoin is the next big thing. I’m getting in early!

December 2019 – Everyone said Uber was a one-way bet.

Our investor does remember and therefore is not condemned to repetition. As we look to the future, we see our investor has gained wisdom. In the future, our investor is…

  • Ignoring investment fads.
  • Realising that markets move in cycles.
  • Invested in a diversified portfolio.

As we close our story, we join Scrooge as he awakens on Christmas morning, looks out his window, and shouts, “The Spirits have done it all in one night. They can do anything they like. Of course, they can. Of course, they can. Hallo, my fine fellow!”

Our spirits, too, have done it all in one blog post. And so, as Tiny Tim observed, God bless us, everyone.

1 Source:
2 Sources: Bloomberg


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