Look back over many decades and you can spot a handful of big themes that dominated markets for five or 10 years at a stretch. They were rarely the only way to make money, but latching on to one of them at the right time was a huge help. We are clearly in a different economic regime to a few years ago, so it’s worth considering what will be the defining theme of this era.
That’s easier said than done – but one starting point is to identify the top themes of the past 50 or 75 years. For the past decade, the answer was tech. You could make outsized returns in other sectors (eg, luxury), but tech has dominated the discussion.
Rock-bottom interest rates were the key characteristic of our era, but you would have made less from directly betting that rates would stay low than buying the big tech boom that they helped fuel. That’s an important lesson about finding the best way to profit from an insight. In the 2000s, we had many choices.
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Emerging markets, energy and natural resources, and gold were all linked: the rise of China and other emerging markets drove demand for commodities and probably precious metals. The other big theme was the real-estate boom, which ended in disaster and the global financial crisis, but was all that many people cared about at the time.
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Most investors would again pick tech for the 1990s, but there were notable differences to the 2010s. First, the recent bull run was driven by established large caps that were still achieving spectacular growth.
Conversely, while there were profitable stocks in the dot-com bubble, very speculative start-ups played a bigger role. Second, tech came to prominence later in the decade. Before that, emerging markets were arguably the centre of the hype, before they started to run out of steam in the middle of the decade and collapsed into crisis in 1997-1998.
The obvious 1980s theme is Japan, which grew to be the largest stock market in the world. Many stockmarkets did well in this era, rising from depressed valuations, but Japan also got a boost from a rising currency, making it compelling for foreign investors. Of course, buying bonds on 15% yields in 1980 also turned out well – but few investors were calling for that at the time and a key part of a big theme is that it has a compelling, positive story that everybody is talking about.
The 1970s were an era of volatility and high inflation: great for energy, commodities and gold, and not much else. Buying equities in the 1974 panic set investors up very well for the following decade – but it didn’t pay off for a while.
The main feature of the late 1960s was the “Nifty 50” bubble of US growth stocks. The 1950s and early 1960s feel murkier, but key trends were the rebuilding of Western economies after the war, the rise of the consumer and a broad equity boom. That’s almost another (re)emerging market story. History does not repeat itself exactly or predictably, but there are a few obvious insights in looking at how these themes rotated.
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