Expert View: What the noughties taught me

By Michael Ranis, February 4, 2010

Some pundits taking a look back at the last ten years have called it “a lost decade”.

They describe what they meant: if on the first day of 2000 you invested in some well-known stock indices, by the end of 2009 you had lost money. The FTSE (down 21 per cent), the S&P500 (down 24 per cent), or the Nikkei (down 19 per cent) were poor investments. Weren’t there several good years in that decade?

Statistics often are crude and deceiving. The overall negative number for these indices was largely due to the fact that major markets were shaken by two massive crises — the “tech bubble”, at the onset, and the “financial crisis” at the very end. They wiped out any gains one may have garnered during the better years. Especially if one was not careful and thought that the trees would grow to the sky.

A more comprehensive review uncovers another impressive fact: during this last decade, the horizons of the savvy investor expanded. They got interested in places beyond the landscape he or she was accustomed to focus on. Attention was paid to India and China, Brazil and Korea. To most traditionalists’ surprise, the more an investor looked outside the old box, the better he did.

Over that decade this investor was likely to at least have doubled his money in South Africa and Shanghai, trebled it in India and Russia, or enjoy as much as 380 per cent of the appreciation in Brazil’s Bovespa. It was not a lost decade for those who could read the tea-leaves and appreciate the potential of some emerging markets. To be fair, it was not always a panacea: some of these markets sucked you in and then punished you mercilessly for getting involved. Vietnam went up massively just to crash badly and leave the late investor with losses and difficult exit strategies. Many also rushed to the emerging republics of the old Eastern bloc, but the story did not always have a fairy-tale ending — just ask some Austrian bankers. And, at the very end of the decade, we also found out that investing in the shifting sands of oil-depleted Dubai was not the way to go.

The lessons of this decade are: 1) The need to invest intelligently: buying a tracker fund will not always deliver. 2) Being broad-minded is better — a narrow focus limited to the familiar may cause you to miss on significant opportunities. 3) The recognition that invested money needs to be managed — selling (when and for how much) is as important as buying; seeing the potential danger in an investment is as valuable as appreciating the opportunity. The next decade — like the last — will produce winners and losers and the key will still be to act wisely with one’s investments.

Michael Ranis is Chief Investment Officer, Bank Hapoalim BM, London Branch

Last updated: 2:46pm, February 4 2010