The tough 2012 is gone. Not only did we turn into 2013, but also the “tough” part of 2012 did not come in the way many people have expected.
2012 started not too bad in Q1 but was quickly dominated a lot of bad news. In HK/China, there were disappointed earnings, company fraud, fear of hard landing, shallow banking, change of leadership…In Europe/US, there were prolonged debt crisis, exit of Greece, the collapse of Euro, Fiscal cliff in US, etc.
However, looking backward, as predicated by behavior economics, we always over-estimated the probability of these events and some of us missed the big rally in 2012, whether it being equity, fixed income, or others.
Going forward, I believe 2013 is a tough year.
Decision making is quite simple in 2012 for people who believe in mean-reversion. Economy, earnings, valuation will return to the long term average. Plus, with so many “risks” being discussed everyday, the chance of them coming true is skewed, and make equity market more attractive.
For 2013, I am bullish but it is much more complicated. First, most people are bullish, or at least much less bearish than 2012. Second, most of the “risks” in 2012 “seems” gone and any chance of them coming back, or “seems” coming back may come as surprise. Third, if the market continues to rise, as a value investor I will face fewer investment opportunities and the decision to hold, sell or short would be really challenging.
After a few weeks of thinking, I still have no idea what 2013 will look like. But with uncertainty and no solution, I decided to do 3 things: read broader, think more and do less.
PS: When formulating my 2013 forecast, I was reading past newspaper (HKET) dating the first few days in the past few years. Interestingly, there was always an article that pull together HSI forecast from various source. And below I summarized them in a chart. Well, I found some patterns there, however, they may be just noise.
Example of 2010 forecast from HKET: