It should not escape anyone's notice that the world of finance and investment as we knew it before the debt crisis - a decade ago now - was very different. Back then it was enough to invest in good, well-priced listed companies (equities) for those looking for reasonable returns over the long term. And all the part of the capital that was not tolerant of high volatility could be «parked» in fixed income by sitting on bonds of developed issuers that paid a few percentage points above the price of money, although not always above real inflation. At that time, money had a reasonable price, and therefore everyone who borrowed it had to make very good use of it if they wanted to amortise that cost and not get their fingers caught in inefficient adventures.
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About 7-8 years ago, after the bursting of the real estate and debt bubble, central banks started to muddle through by showering the world with new money. And free money not only generates its inefficient use, rewarding those who owe more and are less competitive, but also penalising those who have it. It is the jungle where the law of the strongest prevails, and with the debt bubble of 2007 that we are still dragging along, the law that has prevailed is that of the debtor.
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Unfortunately, most investors - and therefore creditors of the debtor universe - have not realised the radical change in the rules of the game imposed by the central banks with the excuse of «saving the financial system». And they continue to invest their money under the old rules and guidelines of obsolete bankers and advisors: in the stock market the part that withstands volatility and in fixed income the part that does not.
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As for the stock market, they are not aware that most listed companies have had access to free money for a decade, and that this allows the survival of inefficient companies that should be extinguished under normal money price conditions. This leads them to find an infinite number of companies in bad shape, in very bad shape and trading at high, very high prices. But the unconscious investor continues to buy mediocre equity investment funds (as he always did with acceptable results), mistakenly thinking that the managers of these funds will know how to discriminate the interesting companies from the uninteresting ones. Just as in a fishing contest when the lake is full of fish (good companies in an economic environment with money at a fair price), where both good and not so good fishermen get a decent haul. But what if the fishing contest takes place in a place where the waters are polluted and the fish are scarce? Then the mediocre fishermen will be left in the lurch, and if you want to dine on fish every night, you will have to trust only the best fishermen in the area and make do with more modest catches than in the old days, when the waters were crystal clear and teeming with life.
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This is the current situation for stock market investors. They will only achieve acceptable returns if they rely on the best managers who know how to select the few good companies at good prices in the polluted waters of expensive stock markets and inefficient and unhealthy companies.
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If this scenario depresses you, I regret to announce that what is happening with fixed income is even worse. Zero or negative interest rates and the intervention of the world's major central banks, with their quantitative easing as never before seen in human economic history, have turned fixed income into a debt dump from which one can only emerge stinking and wounded. Most of the debt in circulation is insolvent - a direct consequence of free money - and also trades at stratospheric prices, crushing its yield to ridiculously low or even negative levels if there is any solvency in its issuer. There is no way to invest in traditional fixed income without taking a risk of permanent losses, i.e. not recoverable in less than 5-7 years without the help of inflation. As we said in «The Silence of the Conservatives».» last year, investors have traditionally conservatives are taking risks they cannot even imagine. Many have followed the guidelines of managers and advisors who simply do not know of conservative alternatives beyond traditional fixed income. Others, however, knowing the risk of global insolvency, have continued to buy assets subsidised directly or indirectly by central banks for fear of going against the grain, of going against those who have the power to make money. All of them have taken, and are taking, a fundamental risk that combines insolvency with political (in)decisions. It is true that so far the gamble has worked out well for them, as the bonds of insolvent countries and companies have risen in price to aberrant levels. And this has brought them additional profits on top of the coupons, which the central banks have religiously ensured that they can pay. But this investor profile, drifting with the currents of central banks and the market in general, cannot be described as conservative simply because they do not invest in the volatile stock market and have done well so far. The lower volatility of traditional fixed income does not imply lower risk, proving once again that volatility and risk are very different concepts, although much of the financial sector confuses them.
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It is true that we have been in this situation for several years now and that reckless traditional bond and expensive stock market investors have had reasonable returns and little unpleasantness to date. But we should not confuse bets, which may temporarily be winners, with investments. to grow our assets over the long term, without permanent losses along the way.
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Adapting our investments to the new era of equities is not easy without the right advice. Investors need to refine more than ever the selection of international investment fund managers and embrace more exotic markets where economic growth still has a long way to go (which is easier said than done). There are some that are marketed in Spain, but not in the bank around the corner, unfortunately, and the range is very limited. On the other hand, adapting our investments in non-equity, i.e. the equivalent of traditional fixed income, is even more complicated: we have to dig into very diverse strategies and hedge funds that are not marketed in Spain, not even in UCITs format in most cases. You have to look for them in international banks and underwrite them from personal investment vehicles. which are only accessible to well-informed, medium-sized or institutional investors. (from 300.ooo or 400.000 eur).
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This difficulty in adapting the investments of small savers to the new era is an injustice that condemns them to leave their 50 or 100 thousand euros in the bank around the corner, assuming enormous risks in the coming years. In other words, it condemns them to buy the products and funds sold to them by commercial banks, investing in expensive and inefficient companies through mediocre equity fund managers, and investing in bonds and fixed income funds full of expensive and insolvent wet paper such as has never been seen in the history of finance. Regrettable and unfair, but they are inevitable fodder for the permanent losses to come in the years ahead.