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Plexus Wealth Watch December 2015

The closing weeks of 2015 were a good illustration of how investment markets operate. Many investors have been waiting with utmost fear for the so called “lift off” in US interest rates. Some were thus perplexed that when it finally happened, nothing happened. This is because the U.S. policy makers did a good job signalling to the market what they intended to do. In the end it was just a matter of whether it was going to be in September or December.

Markets had thus priced in the move and it was no surprise. We often have discussions with clients about shares in excellent companies with great prospects that don’t appear in portfolios. This is because we are not the first people to think that they are great companies, and in many cases the stocks have already been priced to perfection. This means that all the good news is priced into the share price well before the news actually comes through.

The smart money is made in markets by anticipating developments before the market fully prices this in through a thorough understanding of a business and an objective view of its prospects. This is more realistic at company level than at the macro economic level, which is why economists seldom get interest rate forecasts right.

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