2019-05-15

Early one morning in April 2019:

“Swiss equity strategy, 6.40% during the month of April!” was the headline in the famous international financial newspaper… I’m sure I saw that!

Sound asleep in a field full of swaying daffodils, I am lulled by the fresh Spring morning wind, and… Zzzz… Zzzz

Half asleep, my latest blue Swatch shows: 6.40

Suddenly, but gently: “Pierre, Pierre, wake up, wake up!”

All I can smell is bitter burnt firewood, but slowly the more seductive and familiar fragrance of coffee enters my consciousness. Somewhere, in the middle of France, I’m waking up in the big dormitory of a stone cabin for trekkers in remote Auvergne. Aware of my aching back, but deeply grateful to the person who prepared the coffee, I slowly make my way to sit by the fire & drink my big mug of black magic brew.  Just the morning routine during my Easter walking holiday!

Fast forward to now!  I am back in the office, writing my monthly report for April 2019 AND the Performance is: “6.40%”

Abracadabra….Black magic….? No, certainly not, but a positive feeling, after a stretch of underperformance in calendar year 2018.

As a matter of fact, I have been running the Swiss equity startegy for 136 months now. On 14 occasions the monthly performance was higher than 5%, roughly one out of ten: six times in 2009, twice in 2010, once in 2011, 2013, 2015 and 2017, and twice in 2019.  Isn’t it “odd”?

Now let’s do the maths on Mr. (Swiss) Market! If the portfolio showed a monthly performance over 5% twice in the first four months of 2019, does this mean that the 2009 pattern “could” repeat itself? As a reminder, 2009 was our best year as we almost compounded 40%.  Could the SPI, our benchmark, consequently reach in excess of 13’000 points by the end of the year and show a 40% or even 50% performance?

Let’s dig a bit into history and look at the last hundred years:

Between 1924 and 1958, only one year – 1936 – saw an annual performance in excess of 40%.

During this 34-year period, Mr. Market was a 3 and a half-bagger and the yearly compounded performance was 4%.

Between 1958 and 1997, 8 years – 1959,1960,1961,1967,1975,1985,1993 and 1997 – Mr. Market shot up in excess of 40%.

During this 39-year period, Mr. Market was a 20-bagger and the yearly compounded performance was 8%.

Between 1997 and 2018, no year saw Mr. Market climb over 40%. The closest was 2005, with 36%.

During this 21-year period, Mr. Market was a 2 and a half-bagger and the yearly compounded performance was 4.5%

As a matter of fact, it’s been more than 20 years since Mr. (Swiss) Market has produced a stellar yearly performance above 40%.

Last year Michel Dominicé, my partner, raised the million Dollar question:  “Are we in an endless bull market?”.

He argues that we are transiting towards the ZIRC – Zero Interest Rate Capitalism – which could trigger a major asset re-evaluation. Up to now, the current bull market is historically long, because of low interest rates due to expansive monetary policies.  In short: TINA! There Is No Alternative to productive assets, meaning There Is No Alternative to equities.  Therefore, could the bull market persist endlessly?

So all of these indicators, right down to the “odd” 2019, could lead us to believe that Mr. (Swiss) Market’s yearly performance for 2019 could reach the magical 40%.

Mind you, valuation-wise, as reported in the attached monthly commentary, we are still 15% below the portfolio’s intrinsic value.

Extension of a premonitory dream?