Are you an ant or a grasshopper?
By Carmel Fisher
15 December, 2017
Both sets of investors have done well in 2017 but what if the bubble bursts next year?
I reckon I do some of my best thinking in December. The month always brings predictions for the coming year and summaries of the year that's been.
I love reading a variety of views, distilling the good bits and arriving at a position from which to plan the year ahead.
This December is especially interesting because there seems to be a general consensus of views and so, arguably, a greater opportunity to find something others haven't.
The word 'bubble' appears in almost every expert's summation of 2017; whether it's bonds, shares, property or Bitcoin, most commentators view assets as overpriced and unlikely to keep rising as they have in the past 12 months.
There is some dispersion of views around the popping of said bubbles. Some suggest a drawdown (a decline in value) will occur in 2018; some experts predict a full correction, while others expect the bubble to remain intact for years to come.
Virtually everyone expects disruption to be a key factor in investment markets for the year ahead.
They point to artificial intelligence, driverless cars, quantum computing, block chain and other profound technological shifts that will disrupt, disturb, displace and have a significant impact on economies, industries and indeed our lives.
But while everyone knows disruption is 'a thing' there is no consensus as to how big a thing, and who will be most affected by said disruption. A recent example is Amazon's Australian launch.
Analysts warned retailers to baton the hatches and hide their children (figuratively!) as Amazon would quickly woo their customers with cheap products and fast delivery. So far the warnings have been overblown, with Amazon's low-key launch featuring a relatively limited range of products, many offered at or above existing price levels of Australian retailers.
Experts can often be better at predicting losers than winners — like the economists who picked 10 of the last five recessions ...
For all the consensus predictions, nobody told us we should all have bought Bitcoin at the start of the year (or ideally, a few years ago). That would have been the easiest and by far the most profitable investment strategy for 2017.
A tweet doing the rounds recently summed up the frustration of 'old-fashioned' investors, those who didn't buy Bitcoin.
"You: a Wall St trader, spent years in schools learning the minutiae of finance, 10 years of 100-hour work weeks, super excited about your 10 per cent returns this year. Me: a Bitcoiner, read some books, posted on Twitter, ate some steaks, enjoying 900 per cent returns this year."
The tweet is essentially a modern take on Aesop's fable of the grasshopper and the ant. The ants (we old-fashioned investors) work hard all day, analysing securities and finding value in real assets while Bitcoiners (the grasshoppers) have enjoyed significant gains just by being on the right side of a momentum trade.
Should we let FOMO (fear of missing out) lead us to a different strategy for 2018? I for one won't be changing anything.
There is no point talking about what the price of Bitcoin or any other asset bubble might do from here; no one knows.
I'm happy to be an ant, stockpiling returns for the winter, grain by grain if needs be. The grasshoppers may be enjoying their summer harvest but it could disappear as quickly as it arrived.
Will it be frustrating to miss out on the grasshoppers' upside in 2018? Probably. Will I avoid the downside should the bubbles burst? Probably.
To mix Aesop's messages altogether, slow and steady wins the race.