By common consent, 2016 felt like one of the most turbulent years that anyone can remember.
There were political earthquakes of course. The Brexit vote and the election of Donald Trump both took the world by surprise. But what seemed to compound the uncertain outlook was the constant stream of celebrity deaths.
We were regularly assured that statistically speaking, there was nothing unusual in the fact that well-known figures from the 1970s and 1980s were passing away 40-plus years later. But as the months swept by, this rational truth seemed difficult to actually believe. As all those much-loved names from the worlds of art and entertainment succumbed to the inevitable, it was hard to shake the notion that we were living through blighted times.
The end is nigh
In that context, you might think it was rather prescient of RBS to warn in January 2016 that we were in for a “cataclysmic year”. Could they have foreseen that David Bowie’s death was just the beginning? Were they also predicting the end for Prince, Terry Wogan and Gene Wilder?
As it happened, the RBS prediction had nothing to do with discovering that our heroes were human, and everything to do with investment and the global economy.
Predicting the worst
In a note to its clients, the bank issued a startling message. “Sell everything except high quality bonds,” it said, warning that economic indicators signalled that major stock markets could fall by 20 per cent and oil prices could plummet. According to the bank’s credit team, the stresses in the markets mirrored those seen prior to the 2008 crisis, and that meant investors should take action.
So, was RBS correct in its prediction? Should the wise investor have “sold everything” back in January?
Rising to the occasion
With the benefit of hindsight, it is clear that things didn’t turn out quite as RBS suggested they might. Between the beginning of January and the end of December 2016, the FTSE All-Share index rose over 23% and the FTSE 100 index rose over 26%. Things were also looking up for the MSCI World and MSCI Emerging Markets indexes, which rose by over 34% and 43% respectively.
This is not to say that the RBS team was wrong to make a call based on its interpretation of the data. Wherever there is a wealth of historical and real-time information, it’s safe to say there’s probably someone using it to make a prediction about the future. But taking hasty action based on these kinds of predictions is a different matter. Once you’ve read the doom-laden headline it can be hard to resist the feeling that you need to do something – and fast! – but at Callisto, we always advise clients to ignore this chatter.
A strategy you can trust
Why? Because our strategy doesn’t depend on trying to second-guess markets or speculating about when is the right time to buy or sell. Our methods are much more systematic than that – plus they are tried, tested, and based on decades of academic research.
The portfolios we put together for our clients are diversified, low cost and tailored to their specific financial situations. They are designed for the long-term, and although we monitor them carefully, we don’t chop and change things according to inherently unreliable predictions such as the one that RBS issued a year ago.
We don’t need to. Because our portfolios work with markets rather than trying to outsmart them. Sometimes markets fall and sometimes they rise, but ultimately, our clients achieve the financial freedom they deserve.
And nothing that 2016 threw at them will change that.
Here is a link to the RBS Chart to take a look at.