For us retail investors, perhaps the most remarkable feature of 2023 was how little influence climatic and political events wielded over markets. Like a scared rabbit blinking into the headlights of an approaching car, we looked at rapidly rising, damage-foreboding interest rates all over the world, tectonic shifts in exchange rates, and the often announced and never yet arriving recession, despite the visible deterioration of the economy on many fronts. It was mainly the spending power of the US consumer which kept us going, with a lot of spare cash on hands, in the face of hardening financial conditions and painfully shrinking liquidity.
Two massive wars had little effect on market gyrations: the ongoing, meat-grinding stalemate in Ukraine and the vast destruction dealt out in the Gaza strip, a dire open-air prison for two million Palestinians squeezed behind barbed wire and locked out of the world by Egypt and Israel. A friend of mine, working as a war reporter for a major TV station, who had spent the last six weeks in Israel, remarked at a dinner party that in all his decades as a war reporter, he has never seen such an extent of rubble and utter obliteration. Comparable perhaps only to Russia’s annihilation of Grozny, the Chechen capital turned to dust by bombing raids.
In Europe, even major political events changed little. Geerd Wilders, the fiercely anti-Muslim, anti-immigration buffoon, won a majority in parliament but will struggle to form a government, with all other parties refusing to put up with his antics. Portugal’s Prime Minister Antonio Costa had to resign amid corruption allegations, but its economy is doing fine. Spanish Prime Minister Pedro Sanchez secured his leadership by pardoning Catalan separatists and hence gaining their party’s support – to the dismay of many. Polish voters denied the far-right PiS party of Kacynski the parliament majority, smoothing the way for the Europe-friendly, law-respecting Donald Tusk into government, if only president Duda would allow him.
At the time of writing, it was still wait and see. Malta has to suffer a cynical, law-bending and corruption-tainted government until 2027, with little chance of the out-of-touch, ratty Nationalist opposition to ever gain traction with voters. The British conservatives are on their way out, with after-Brexit migration hitting all-time highs and the cost-of-living crisis spreading. Germany, one of the least-indebted, rich nations, is suffering a self-inflicted budget crisis, unable to invest in its future. Greece, the mutilated victim of the Great Financial Crisis, is excelling economically, while politically displaying an image of calm. In Italy, the much-dreaded, supposedly far-right Georgia Meloni acts like a seasoned liberal.
We know by now that 2023 was the hottest year on record. As emission reduction targets envisaged at the Paris Climate Summit in 2015 are clearly out of reach, we are heading into a world of cataclysmic weather events and unbearable heat. Increasingly we started to focus on how to adapt, rather than to avoid climate Armageddon. This year’s climate conference took place in Dubai, headed by UAE’s prime minister, who wasted no time securing lucrative oil deals in side talks. The symbolism of one of the biggest oil exporters parading as a climate saver did not go unnoticed. It looks as if the whole world is going the Malta way.
Inflation in the world’s biggest economies is coming down. Last month saw Europe’s inflation falling to 2.4%. “Team Transitory”, all the economists and financial pundits who argued that rampant inflation was more supply-induced than fuelled by rampant consumption, look all of a sudden prescient. Who knows? Nevertheless, last month saw most stock exchanges rising enthusiastically and bond values going up. Perhaps there’s no recession after all.
In November, Charly Munger died at the age of 99 – just short of his 100th birthday. Munger was Warren Buffett’s “sidekick”, his indispensable partner in the most successful, consistent investment undertaking in history. Their investment vehicle Berkshire Hathaway, worth close to $800 billion today, saw its share price multiplying from $19 in 1965 – the time Warren Buffett took over – to $545,900 today. This is, according to my HP calculator, a gain of 2,873.058%. Sadly, even a single share is unaffordable for most of us.
Maltese shares are a gamble on Malta’s economic success- Andreas Weitzer
A reader once asked me why I never focus my investment interest on Maltese stocks. I answered that Maltese shares are a gamble on Malta’s economic success. As I live and work in Malta, I am already fully exposed to its economy, willy-nilly. Hence my need to diversify. But even to an outsider, there’s little to attract interest. The Malta Stock Exchange index has gained 7.28% year to date, but lost 17.36% in five years. This is worse than the pummelled Shanghai Stock Exchange Composite, which lost only 1.87% in five years. Maltese shares with a price/earnings valuation of 10.25 are that cheap for a reason.
Admittedly, my own investments, which I evaluate on a US dollar basis, have not fared much better over the last year. This has reasons beyond merely bad stock-picking. Some of my investments are held in currencies which fared badly, like the Japanese Yen. A third of my portfolio consists of bonds, which have suffered great losses with rising interest rates. And some of my bonds were issued by Russian emitters and hence of no worth. A gain of 7.35% over the last year looks Maltese, but my investments are at least up 13% over five years.
With hindsight, it would have been far better to put all my money in the US S&P 500 Index. American shares have gained 13.9% year on year (a gain of 18.97% including dividends) and 73.48% over five years. This was almost exclusively due to Big Tech. If the S&P Index would have been structured giving equal weight to all constituents of the Index, as opposed to market capitalisation, which favours always the biggest companies, the S&P Index would have been down year to date. The Japanese Nikkei Index, up 20.97% in the last year, has seen a much broader industrial revival. Again, it was Buffett who had seen it all coming. His bet on five, big Japanese trading houses is up 183.33% according to insiders.
Betting on Big Tech in time would have made me a millionaire. But even here, pitfalls loomed. What was long hailed as the FAANGs (analysts love catchy acronyms) – Facebook, Amazon, Apple, Netflix and Google – has since last year coalesced into The Magnificent Seven. Google is now called Alphabet, Facebook Meta, while Netflix has lost its place on the table for good. The “Seven” are Apple, Amazon, Alphabet, Meta and the “newcomers” Nvidia, Microsoft and Tesla. These companies are boosted by their “broad moat” (Buffett) – a euphemism for anti-competitive, monopolistic dominance, the growing importance of cloud services and the recent advances in artificial intelligence, popularised by ChatGPT.
A concentrated investment in the Magnificent Seven would have yielded 73.55% in the last year alone, or an astounding 432.39% in the last five years. We know this now. But who knows what 2024 will bring? Perhaps the Dirty Dozen? A US President called Donald Trump? Conflict with China? The long-expected recession? The AfD ruling Germany? The absolution of Konrad Mizzi and Yorgen Fenech? Let’s hope for the better. I wish all readers a happy and prosperous 2024. And us retail investors the wisdom to profit in confusing times.