March 2015 Tigers in Africa
“The great enemy of the truth is very often not the lie, deliberate, contrive d and dishonest, but th e myth, persistent, persuasive and unrealistic.” John F. Kennedy
“Do you want to see another animal?” My family were on the last leg of a wonderful trip to the Kruger Park in South Africa, and they were all getting a bit tired, but the French woman next to them had no such quarrels. “Yes”, she quipped, “I would love to see a tiger”. Everyone else was stunned into silence. I am telling you this little tale, not to make fun of the poor French woman, but because it reminds me of something we are all guilty of from time to time – unrealistic expectations. As I have learned over the years, if we cut corners on our homework, we may be expecting things to unfold in a way that just isn’t going to happen. In the following, I will review a handful of ‘African tigers’ – concepts or ideas which have become so engrained that a substantial part of the investment public takes them for granted, even if more in-depth research suggests otherwise. We are confronted by difficult choices almost every day. The easy way out is to follow the herd and believe that a tiger was just spotted in Africa. We all know, though, that it just isn’t going to happen (in the wild). Tiger 1 – Equity returns will be just fine Academics operate with an expression called recency. It basically means that we, as humans, assign greater relevance and importance to more recent events than we do to more distant ones. When equities delivered exorbitant returns during the great bull market of 1982-2000, it became the norm to expect double digit returns from equities, despite the fact that equities had rarely delivered such high returns before the 1980s