{"id":9051,"date":"2023-12-14T16:56:05","date_gmt":"2023-12-14T16:56:05","guid":{"rendered":"https:\/\/sarasinandpartners.com\/za\/?p=9051"},"modified":"2024-01-29T10:55:03","modified_gmt":"2024-01-29T10:55:03","slug":"future-shock-the-past-is-becoming-unreliable","status":"publish","type":"post","link":"https:\/\/sarasinandpartners.com\/za\/think\/future-shock-the-past-is-becoming-unreliable\/","title":{"rendered":"Future shock: the past is becoming unreliable"},"content":{"rendered":"

How do you invest when the past is no longer a reliable guide to the future?<\/strong><\/h3>\n

Our global, hyper-connected society is increasingly unlike any that has come before. Thanks to exponential growth in computational power and communications networks, we have created an interconnected, complex and fast-paced world.<\/p>\n

In the process, we have also created a far wider range of potential futures for ourselves. In fact, it is now much less likely that the future will closely resemble the past, and more likely that disruptive forces will have a major impact.<\/p>\n

So how do you invest when the past is no longer a reliable guide to the future? We believe this question presents a key challenge to traditional investment approaches that \u2013 whether they focus on \u2018value\u2019, \u2018growth\u2019 or \u2018quality\u2019 \u2013 rely on historic data and the implicit assumption that the future will resemble the past.<\/p>\n

Increasing uncertainty is undermining the relevance of historic data and the predictive power of backward-looking analysis. Over time, this is likely to become the Achilles heel of many active managers.<\/p>\n

Have you got the right time?<\/strong><\/h3>\n

One response to an uncertain future is to focus on short-term investments. These offer the allure of high returns if you can, for example, predict the next recession or shift in interest rates. But gaining even a small edge in this intensely competitive arena is hard. Market participants such as algorithmic traders and hedge funds often use significant leverage and high turnover rates to deliver merely adequate returns.<\/p>\n

We do not believe this is appropriate for long-term investors, given the potential damage to returns when such investment decisions turn sour.<\/p>\n

A second possible response is to abandon any attempt to predict the future and place your faith in \u2018immutable laws of investment\u2019, such as a conviction that markets are efficient allocators of capital over the long run. Investing along these lines may bring rewards, if investors are sufficiently patient: even a stopped clock is right twice a day. However, the exceedingly generous time horizon demanded is impractical for most, and virtually liberates investment managers from any accountability to their clients.<\/p>\n

We believe the sweet spot for active investment lies between five and ten years. This is beyond the scope of most market participants and so is rife with opportunities for good research to be rewarded. At the same time, it is short enough to keep us honest and accountable for delivering meaningful investment returns.<\/p>\n

This time horizon naturally orients us towards a thematic approach, focusing on durable themes that drive markets over this period [see the box for more]. These are significant trends born out of fundamental changes in societies and economies. They therefore have deeper underpinnings than the cyclical yo-yo of growth, inflation and interest rates and are likely to remain relevant throughout our investment period.<\/p>\n","protected":false},"excerpt":{"rendered":"

How do you invest when the past is no longer a reliable guide to the future? Our global, hyper-connected society is increasingly unlike any that has come before. Thanks to exponential growth in computational power and communications networks, we have created an interconnected, complex and fast-paced world. In the process, we have also created a...<\/p>\n","protected":false},"author":23,"featured_media":12360,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[28,27],"tags":[],"coauthors":[104,192],"class_list":["post-9051","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-markets","category-thematic"],"yoast_head":"\nFuture shock: the past is becoming unreliable - Sarasin & Partners South Africa<\/title>\n<meta name=\"description\" content=\"Our hyper-connected society is unlike any from before. 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