The direction of equity markets post-Lehman – as marked by a total return chart of the FTSE All-World Index from around April 2009 – is a steady upward climb. Even a sharp puncture in early 2020 fails to derail a long trajectory that only starts to crest in late 2021.
Look closer, however, and this one slope has several stages. For the first six years, the gains are accretive, compounding at 15 per cent a year. The climb then steepens in the two years to February 2018, as annual returns average 24 per cent. Finally, after equities bottom in March 2020, there follows a 20-month sprint on a 31 per cent annual return gradient.
It was a great, if somewhat strange, time to own equities. As the returns came more quickly with each new leg of the bull market, market psychology changed. When abnormal returns are normalised, patience loses its virtue, and risk-taking proliferates.
This reflex might help explain the past six months’ attempts to discount evidence that higher inflation and interest rates aren’t about to vanish. It might also account for the explosion in recent years of products and assets that appear designed to satiate impatient investing.
Nowhere has this impulse been more insidiously channelled than the hype cycles of crypto. Whatever its evangelists say, the mainstream appeal of bitcoin is neither ideological nor practical, but speculative. To the extent cryptocurrencies excite the popular imagination, it is in their association with overnight fortunes, rather than their supposed challenge to the fiat system or promised improvement on our already instantaneous payments networks.
The rise of retail platforms offering contracts for difference and other derivatives is another expression of the phenomenon. As these platforms’ mandated disclosures hint at, adding leverage to bets on short-term price swings is a reliable way for most people to lose money. Just because a few smart people make a living trading these products doesn’t make them a smart solution for the many.
And yet the popularity of similar short-term trading instruments continues to surge. Recently, average daily trading volume in S&P 500-linked zero-day-to-expiry options – which allow traders to bet on one-day price moves in the index – hit a record $1tn, according to JPMorgan. The bank also warned that should it continue, the trend could combine with low liquidity and position covering in ugly fashion, leading to major price disruption.
These examples aren’t highlighted as a comment on investor rectitude. The search for alpha, in all its forms, both helps markets to function and eventually sifts good ideas from bad ones. If growing legions of punters want to trade daily (or hourly) price action, brokers will oblige.
The problem lies in how this cocktail of recent market memory and get-rich-quick products end up reducing investing to a myopic sport in which timing is everything, and a narrative that implies perpetually moving in and out of the stock market is a sound strategy.
This month, Morgan Stanley went as far as to tell its clients that owning US stocks – not buying at today’s indisputably elevated valuations, but simply owning perhaps the most successful conduit to mass wealth creation in human history – might not be worth the risk. Assuming this view is temporary, it still poses problems. Under what circumstances should investors reassess things? And how alert need they be until this moment comes?
Like all investing publications, we probably bang on too much about Warren Buffett. His life and career are already overanalysed, many of their ‘lessons’ impossible to replicate. But his biography suggests his enormous wealth is the result of a character with traits that are both somewhat impatient (aged 13, he vowed to kill himself if he wasn’t a millionaire by 30) and pathologically patient (aged 92, he has now been investing continuously for 80 years).
His latest annual sermon, published this month, was parsed for his every utterance on current events. But patient optimism remains the theme to which he constantly returns. “Having a long attention span and the ability to concentrate on one thing for a long time is a huge advantage,” writes Buffett, in a line attributed to his pithier partner, Charlie Munger.
Amid the warp-speed, burned-out din of modern markets, it is always worth reflecting that it is here, in patience, where your best chance of an edge lies.
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