At the start of each new year we aspire to better lives – hopes, dreams, and all that goes with it. And then as cynics must – we deride it and say it will never happen.
2012 felt like déjà vu – same story, same problem. What is the state of the world economy – poor and Europe is in too much debt and not showing any real signs of clear, decisive and effective leadership. Prospects for 2012 – expect a tough year. There is a lot of bad news, a lot of risk, and a lot of opportunity to really go wrong.
So much bad news may not be such a bad thing – we know it. We really do fear the worst – or what we perceive as the worst. If expectations are so low – then the power of surprise lies on the upside. At the OMIGSA quarterly briefing yesterday both Peter Brooke and Johann Els (both of OMIGSA) stressed this. Yes it looks bleak – yes there is enormous risk (Els attaches only a 55% probability to his base case of gradual healing and normalisation); but this risk is possibly not in the lack of knowledge of the situation but rather in how it is dealt with.
Els and Brooke are not the first financial experts to point out to me that we thought 2011 would be okay and were wrong so maybe the low expectations of 2012 can lead to better results. The cynics will say but just look at how bad things are. The logic says they must be right – there is more room for good news given how bad the bad news is.
Whatever is your reading of the situation – there can be no denying three usual truths:
1. We do have a lot of knowledge of the risks,
2. There is always more than one side to a story, and
3. Something unexpected will happen and after the event we will find those who predicted this too.
It has made for a very divided and indecisive start to the investing year – after the shock of school fees and any excess Christmas spending fade – what does an investor do? Brooke’s answer – diversify – maybe more than usual and in more asset classes than usual – and how standard save more. Be careful but don’t make the mistake the politicians make and dither – be decisive in the plan and its implementation.
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