outlook-2018-a-disciplined-approach-is-more-reliable-than-price-forecasts
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Outlook for 2018: Market Prices Are Difficult to Predict

Although the future remains uncertain, we can safely assume that on January 1 another new year will begin. For most investors, the big question is what the new year might bring. 2017 was a good year for the markets – will it be followed by a bad year? Possibly. But it is equally possible that it will be another good year. 

Here’s the thing: none of us can predict the future. Every investor is exposed to the same fundamental market information and market moods. This is why forecasts should not be the sole basis of a robust investment process.

We also need to remember that the world is full of paradoxes: Some scientists say, “The universe is limitless.” Others demur, “The universe is finite, because all space is limited.” Modern financial market theory assumes that markets are efficient. This means that the ability to forecast changes in prices is near zero, since all information relevant to prices is already taken into account in the prices paid.

Market Prices Are Difficult to Predict

At the same time, investors must take decisions every day that obviously depend upon their expectations for the future. How can they deal with the most fundamental paradox of our financial market reality? Nihilism could be one answer, though a poor one. A claim such as “XYZ successfully predicted the last few rallies/downturns” is a more popular response, though not a better one.

Discipline seems to be the best answer. Discipline guides our investment questions into a consistent framework and offers practical aids to decision-making. This is also the crux of the Credit Suisse Investment Process. Discipline calls for an investment process to be independent of market moods and to calibrate assets with a view to a changing world. This is what makes the difference.

A Look at the Present Provides the Basis for Forecasts

Alongside discipline, it is important to develop a clear understanding of present conditions. Here we have the most information. Combined with our collective knowledge, our systems and an experienced dialog, we can then create a mosaic that is as realistic as possible.

This in turn gives us the best foundation to assess probabilities in terms of momentum, valuations, constraints and possible turning points. Turning points generally emerge when fundamentals change direction and emotions exaggerate the turnaround. The art of a holistic investment process consists less of forecasting such turning points than of a constant calibration of all portfolio risks in the light of various probabilities.

The multi-year track record for the Credit Suisse mandates demonstrates that such an approach delivers above-average results over time. Given the great and small investment themes of our times, asset management mandates thus remain the best option for investors.

a-disciplined-approach-to-investing-is-better-than-any-forecast

Aggregate performance of our mandate portfolios (CHF) 

Source: Credit Suisse

Market Outlook Remains Positive despite Risks

In our current fundamental assessment, positive factors continue to outweigh the various risks that have already caused 47 “panic attacks” since the bull market began in 2009, interrupting but not stopping the upswing.

Despite numerous portfolio calibrations, we maintain an ongoing and deliberate 45% equity allocation in our Balanced mandates. This illustrates, along with our 19.5% allocation in alternative investments, our unchanged constructive stance on the current «major weather pattern» on the global financial markets.