In today's financial and economic times, as an old friend often says, it is urgent to wait. This is not a time for long-term investment ventures that are susceptible to macroeconomic changes or geopolitical conflicts, which are more uncertain than ever. The steps that investors must take in such a muddy environment must be short, stable and prudent. It is more true than ever that the concept of crisis is synonymous with opportunity, but this does not mean that we should not take ambitious and adventurous steps when a mine-ridden swamp surrounds us.
The returns that will be achieved in the coming decades are nothing like those of the last 50 years. The zeroes added to the global living debt will prevent this, as we have drunk the wealth we will generate in the future, in one gulp and without tasting it. As an example of the yield compression we are facing, here is a button: We have just closed a deal to sell the 4 real estate developments we have carried out in China, with just one profit of approximately 30% and an annual IRR somewhat higher than 11%.. And we are talking about real estate in one of the most dynamic and growing economies on the planet, where one would expect something more in terms of annualised yield. This operation is also in line with what we said about taking short and stable steps, as the investment of 4 real estate developments will be liquidated in only 3 years, from the acquisition of land to the total sale. This is the prudent model to follow in the near future. Even in real estate transactions, uncertainty must be reduced and annualised returns must be moderated. The times of taking 8 or 10 year risks with potential returns in excess of 20% per annum are over. That is history if you want to keep your feet firmly on the ground. And this view of reality is not gratuitous tremulism, numerous prestigious studies support a dangerously anaemic future.
Just yesterday, a banking professional was proudly telling me about the yield projections (very moderate, by the way) he was making for his clients. With his calculations of error and hit probabilities and his brand new Gaussian bells. «Customers want to see what they will be earning in the next few years«he said very self-confident, «.«And we show it to you with a 95% hit probability.«. I then replied that he must have known as well as I did that all these future projections were impossible to fulfil, simply because the present and the future will be radically different from the past on which these projections are based. At that moment his face changed, he came out of the matrix or mantra in which he is professionally immersed during his entire working day, and in a flash of lucidity he recognised that indeed those yield projections had no chance of being fulfilled and that they were merely a mirage that could help them commercially while the clients were entering an immeasurable desert. Personally, I consider this banker technically a good professional (the bad ones are not even aware that these forecasts have feet of clay because they are based on an unrepeatable past), but many like him continue to «promise» their clients a placid future, telling them what they want to hear in order to prevent them from going to the competition, where they will give their ears even more without the slightest scruple. They were morally justified in thinking that their promises of future returns are comparable to the pious lies that a terminally ill person receives: «Why are you going to make their lives worse before their time?»
Unfortunately, there are many investors who have not yet realised the change of scenery, and they will be the prey of mutilating adventures. In the years to come, natural selection will leave only investors with the ability to invest in a global, diversified and well-informed manner. These are times for the so-called qualified investors, while savers will unfortunately retail are going to fall victim to this demanding and selective New Normal.