Sleepy summer markets lifeless

Caroline Ritchie.

Reporting in from the beach this week. Some people have been kind enough to have me to stay and have put me up in the loft of their bach. It is on the waterfront and is open air. At night, when trying to sleep, the ghostly surf deafens me as the stars shine massively from an inky blackness.

It is very romantic in that Kiwi holiday kind of way. I am bunking alone so it is not romantic in the other kind of way, but oh well. The whole neighbourhood has that lovely end of year sagginess about it, nary a care, and we laugh just as hard at all the jokes as we did the first time we heard them. Summer has us snared: sinker, line and hook.

Markets are always a bit flabby at this time of year. The brokerage houses are mostly quiet, advisers passing the time by texting their wives, who are at the beach, and googling for holiday bargains. The results are in, the final reports composed and the NZ50 index at the time of writing has nudged an all-time high of 6300. Most pleasing! So, on to some compulsory predictions for the year ahead.

Goldman Sachs, leading the unhappy brigade, expects rising interest rates and a strengthening dollar in the United States to throw a spanner into the already halting performance of American stocks (The S&P500 index managed only a 1.5per cent return this year). It also suggests peaking profit margins and above average P/E ratios will make further exceptional gains unlikely.

But Goldman Sachs thinks that actual share profitability might be okay (you can manufacture artificial growth by launching the odd sneaky stock buy-back, rather than doing it the nagging organic way, and we've seen quite a bit of that this year). Then it lists a few individual fancied shares. So, from Goldman Sachs, I guess a bob each way, just reading between the lines.

This, verbatim, from UBS: "Simply put, barring an unforeseen external shock or a recession, if earnings continue to improve, 2016 should be a positive year for US equities. Regardless, we continue to expect further volatility -- which means higher risk, both upside and downside."

What this says, essentially, is nothing. It wavers: shares go up, shares go down, it all depends. A primary school child could have said it, except they do not teach children about shares at school, which is a shame.

So, from UBS, I guess, a bit of sitting on the fence, just reading between the lines.

And they are probably right to hedge their bets, these big guys, as they do every year. They are playing a long-term game. No good ever came from large financial organisations shooting their mouths off in all sorts of funny directions.

They play conservatively, if a bit waffly, and so should you. Once correctly positioned for your situation, you'll survive nearly anything the markets can throw at you. Balance and fortitude are the best portfolio ingredients (if a tad boring), along with my favourite -- sticking to the plan.

Fortune telling? Not so much. Rampant staring into the future can lead to skew and bias, which is not helpful. Repeatedly reading a strong predictive narrative over and over tends to warp the brain and what was originally stated as pure opinion tends to get interpreted as fact. Avoid.

Personally, I'm with Chinese philosopher Lao Tzu -- "He who knows does not predict, he who predicts does not know".

No amount of crystal ball-gazing will make any difference in the end, so for now just enjoy the moment, the lazy sunshine and the holidays.

- Caroline Ritchie is a former AFA, sharebroker & portfolio manager. She runs Investment Stuff, an investment coaching service. Visit her at investmentstuff.co.nz. Statements in this column are not financial advice.