As ever, Platinum make a great presentation and the recent Platinum Roadshow (2016) was no exception.
CIO Andrew Clifford discusses the big macro issue of the day, namely extremely low interest rates and the pervasive impact this has had around the world through causing asset price bubbles. This relates directly to the previous article I blogged about in The Value Trap: value traps are created where excess investment has been made in a particular area. Connecting the dots: lower interest rates forces capital into more speculative assets, which cause asset price bubbles, which causes future oversupply which causes more value traps.
This is also joined at the hip by vastly improved IT systems which have increased productivity, which in it's own way is contributing to oversupply (capacity is increased if everyone can do more each day).
If you buy this argument, then life is tough for the stoic value investor - you just can't buy 'cheap' stuff and hope for the best. However - blame for poor returns has typically been pointed at momentum traders ignoring the market and just focussing on the few in-vogue growth stocks and ignoring everything else. While it is true there has been a handful of stand-out performers, I believe blaming momentum traders for poor value returns is largely incorrect. It's poor analysis (which I have been guilty of too) through confusing value with value traps. As Platinum go on to explain, while returns from Japanese equities have been dreadful as a whole, stand-out returns have been made by investing in reasonably priced growth stocks with high dividend yields.
This does mean saying 'no' more a lot more often - there just aren't a huge number of unique opportunities out there (but happily still plenty to go around). It also means being far more patient - it can take a very long time for oversupply to be soaked up - if ever. A few examples: Australia will probably never again have a 'shortage' of grocery shelves, and last year I holidayed in Rhode Island (US) where you could see plenty of old textile mill buildings - I wonder how many investors got burnt waiting for the turnaround. Being aware of these pitfalls has made a huge difference to my investing.
Kristian
