Gold Diggers

During the gold rush of the 1850’s, tens of thousands of hopefuls flocked to the gold fields searching for their big break.

Some struck it rich, most finished in ruin.

Amazingly, some of the wealthiest people to emerge from the goldfields were not gold diggers.

Instead they were the ones selling the picks and shovels.

So what was the difference?

The merchants asked a different question.

The gold diggers went looking for gold, the merchants went looking for opportunities.

The diggers started with a shooting question, the merchants started with a fishing question.

But most of all, the merchants understood that a hungry crowd is better than the best restaurant.

This week I explained to our clients in an email that the world has reached a major fault line.

Meaning, the next ten years will be the exact antithesis of the last ten years.

Put simply, if the twenty teens was all about low interest rates and high growth, then the twenty twenties will be characterised by high rates and low growth.

Prima facie, this suggests the next ten years will be tough. They won’t be. They’ll just be different.

The biggest change will be a seismic shift in people’s thinking. Investors will be forced to think like merchants instead of gold diggers chasing the same types of opportunities all the time.

This is how the world will look like on the other side of the fault line…

i. Lending will tighten until debt levels normalise.

ii. Chasing growth (capital gain) will not generate the same returns as the past decade. i.e. the era of big stock returns and crazy property prices is over.

iii. Dividend and rental yields will be more important than ever…and more attractive.

iv. Bonds yields will remain high because of higher interest rates and therefore provide an attractive alternative to shares and property but with a lot less risk. This also means a lot less money will flow back into stocks and property as well.

If investors continue to think like gold diggers, or worse, have the same expectations as the last ten years, they’ll struggle.

But if they’re willing to think like merchants, they’ll find more opportunities with much lower risk profiles.

Gold!

Have a great weekend!

Adam

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