High price-to-earnings ratios. Seasonal return adages. Tax rises. A weak (or strong) dollar. What do they have in common? Conventional wisdom claims all are bad for stocks.
Most investors accept that unquestioned. Don’t. Things “everyone knows” are very often provably wrong. Getting that right gives you an edge. It isn’t hard to do. Never presume common wisdom about what is good or bad for capital markets is correct. See it as a theory to test like a scientist should. Here is your “laboratory” for doing just that.
Little we see is truly unprecedented. So, you can easily test most basic claims against historical data. Many prove false.
Example? An ancient market myth argues January’s returns predict the full year’s. Good January, good year. Bad January, bad year. This is simple to test with historical stock returns.
Consider America’s S&P 500 index in USD for its long and accurate history. Monthly data begins in 1926. Since then, January and the year were positive 52 times – 53 per cent of all years. Does this “prove” January’s predictive power? No. It simply shows you stocks are positive more often than not historically.
The least common occurrence is a positive January preceding a down year – nine times. But a negative January preceded a down year seven times – slightly less often than it preceded an up year, 21 times. Not predictive or far off from a coin flip. Any “strategy” reliant on cherry-picked data, like this so-called “January effect”, isn’t viable.
Or consider the widespread belief that high price-to-earnings (P/E) ratios hurt stocks and low P/Es are good. We can disprove this in our market laboratory also.
Since 1926, US stocks’ average 12-month trailing P/E (price divided by the last 12 months’ earnings) is 17.7. Monthly P/Es topped this 476 times through May last year. Over the next 12 months, the S&P 500 fell 139 times and rose 337 times – a 70.8 per cent frequency of gains. The opposite of conventional wisdom.
And for the 705 months with below-average P/Es, the next 12 months rose 78.4 per cent of the time. Together, this just shows you, again, that stocks rise much more often than not. Regardless of P/E. That’s it.
History shows many “common sense” popular beliefs are false. Tax rises? Not reliably, repeatedly bad for the US, global or any major stock market. Britain lives this now, with stocks up nicely despite an April tax rise. Same with fears around high government budget deficits. Natural disasters. Trade deficits.
Endless misperceptions hold for currency swings, too – up or down. Many fear the US dollar’s recent “weakness”, claiming it portends the currency’s global reserve status ending or that global confidence in America is gone – supposedly boding ill for US stocks.
In the US and globally, weak currencies also fan fears of higher import costs fanning domestic inflation. Meanwhile, strong currencies spur endless fretting, too. European nations now fret importing deflation and slow growth as their currencies strengthen.
But history shows stocks rarely react – regardless of the dollar or other currency’s strength or weakness. Since 1973, when the index measuring the US dollar against a trade-weighted currency basket begins, the greenback weakened in 18 years. Stocks fell with it just two times … and rose 16 times.
Now, that doesn’t mean a weak currency is automatically bullish. But it certainly isn’t bearish – and undercuts common “wisdom”. Conversely, the dollar strengthened during 33 years since 1973. US stocks rose with it 25 times and fell eight times.
All of this simply aligns with stocks’ average frequency of returns throughout history. There is no investing strategy to glean here.
No, history doesn’t repeat perfectly. But investing isn’t about certainty, ever. It is about probabilities. And history frames probabilities. If people say Thing X is bad for stocks, but X preceded good returns 70 per cent of the time, you absolutely know there is a high probability X isn’t bad.
You can’t dismiss it, but you can study what else happened during the 30 per cent of history when X seemed bad. Maybe it was coincidence. Maybe you find Thing Z was also afoot, so you look at whenever Thing Z happened to see if it is reliably bad. If it is, and you can find a good, economically sound reason for why it would be bad, then you have precious information few others do. Another powerful edge to do better than others will.
Even simply proving popular claims aren’t true gets you well ahead. Markets pre-price widely known information, including popular beliefs and myths. When you can invest knowing common wisdom is wrong, opportunities abound to ride stocks’ positive surprise.
The biog
Birthday: February 22, 1956
Born: Madahha near Chittagong, Bangladesh
Arrived in UAE: 1978
Exercise: At least one hour a day on the Corniche, from 5.30-6am and 7pm to 8pm.
Favourite place in Abu Dhabi? “Everywhere. Wherever you go, you can relax.”
Tank warfare
Lt Gen Erik Petersen, deputy chief of programs, US Army, has argued it took a “three decade holiday” on modernising tanks.
“There clearly remains a significant armoured heavy ground manoeuvre threat in this world and maintaining a world class armoured force is absolutely vital,” the general said in London last week.
“We are developing next generation capabilities to compete with and deter adversaries to prevent opportunism or miscalculation, and, if necessary, defeat any foe decisively.”
Killing of Qassem Suleimani
The years Ramadan fell in May
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Tearful appearance
Chancellor Rachel Reeves set markets on edge as she appeared visibly distraught in parliament on Wednesday.
Legislative setbacks for the government have blown a new hole in the budgetary calculations at a time when the deficit is stubbornly large and the economy is struggling to grow.
She appeared with Keir Starmer on Thursday and the pair embraced, but he had failed to give her his backing as she cried a day earlier.
A spokesman said her upset demeanour was due to a personal matter.
Sri Lanka World Cup squad
Dimuth Karunaratne (c), Lasith Malinga, Angelo Mathews, Thisara Perera, Kusal Perera, Dhananjaya de Silva, Kusal Mendis, Isuru Udana, Milinda Siriwardana, Avishka Fernando, Jeevan Mendis, Lahiru Thirimanne, Jeffrey Vandersay, Nuwan Pradeep, Suranga Lakmal.
SUZUME
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MATCH INFO
Uefa Champions League semi-finals, first leg
Liverpool v Roma
When: April 24, 10.45pm kick-off (UAE)
Where: Anfield, Liverpool
Live: BeIN Sports HD
Second leg: May 2, Stadio Olimpico, Rome
Scoreline
UAE 2-1 Saudi Arabia
UAE Mabkhout 21’, Khalil 59’
Saudi Al Abed (pen) 20’
Man of the match Ahmed Khalil (UAE)
Water waste
In the UAE’s arid climate, small shrubs, bushes and flower beds usually require about six litres of water per square metre, daily. That increases to 12 litres per square metre a day for small trees, and 300 litres for palm trees.
Horticulturists suggest the best time for watering is before 8am or after 6pm, when water won't be dried up by the sun.
A global report published by the Water Resources Institute in August, ranked the UAE 10th out of 164 nations where water supplies are most stretched.
The Emirates is the world’s third largest per capita water consumer after the US and Canada.
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'Top Gun: Maverick'
Rating: 4/5
Directed by: Joseph Kosinski
Starring: Tom Cruise, Val Kilmer, Jennifer Connelly, Jon Hamm, Miles Teller, Glen Powell, Ed Harris
RESULTS
6.30pm Handicap (TB) $68,000 (Dirt) 1,200m
Winner Canvassed, Par Dobbs (jockey), Doug Watson (trainer)
7.05pm Meydan Cup – Listed Handicap (TB) $88,000 (Turf) 2,810m
Winner Dubai Future, Frankie Dettori, Saeed bin Suroor
7.40pm UAE 2000 Guineas – Group 3 (TB) $125,000 (D) 1,600m
Winner Mouheeb, Ryan Curatolo, Nicholas Bachalard
8.15pm Firebreak Stakes – Group 3 (TB) $130,000 (D) 1,600m
Winner Secret Ambition, Tadhg O’Shea, Satish Seemar
9.50pm Meydan Classic – Conditions (TB) $$50,000 (T) 1,400m
Winner Topper Bill, Richard Mullen, Satish Seemar
9.25pm Dubai Sprint – Listed Handicap (TB) $88,000 (T) 1,200m
Winner Man Of Promise, William Buick, Charlie Appleby
Killing of Qassem Suleimani
Results
5pm: Handicap (PA) Dh80,000 1,400m; Winner: Faiza, Sandro Paiva (jockey), Ali Rashid Al Raihe (trainer).
5.30pm: Handicap (TB) Dh90,000 1,400m; Winner: Greeley, Connor Beasley, Helal Al Alawi.
6pm: Emirates Fillies Classic Prestige (PA) Dh100,000 1,600m; Winner: Marzaga, Jim Crowley, Ana Mendez.
6.30pm: Emirates Colts Classic Prestige (PA) Dh100,000 1,600m; Winner: Jawaal, Jim Crowley, Majed Al Jahouri.
7pm: Wathba Stallions Cup Handicap (PA) Dh70,000 1,600m; Winner: AF Ashras, Tadhg O’Shea, Ernst Oertel.
7.30pm: Handicap (PA) Dh80,000 2,200m; Winner: Somoud, Richard Mullen, Ahmed Al Mehairbi.
Veere di Wedding
Dir: Shashanka Ghosh
Starring: Kareena Kapoo-Khan, Sonam Kapoor, Swara Bhaskar and Shikha Talsania
Verdict: 4 Stars
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UAE currency: the story behind the money in your pockets
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
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UAE currency: the story behind the money in your pockets
More coverage from the Future Forum
THE BIO
Favourite car: Koenigsegg Agera RS or Renault Trezor concept car.
Favourite book: I Am Pilgrim by Terry Hayes or Red Notice by Bill Browder.
Biggest inspiration: My husband Nik. He really got me through a lot with his positivity.
Favourite holiday destination: Being at home in Australia, as I travel all over the world for work. It’s great to just hang out with my husband and family.
COMPANY%20PROFILE
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Adele: The Stories Behind The Songs
Caroline Sullivan
Carlton Books
Coming soon
Torno Subito by Massimo Bottura
When the W Dubai – The Palm hotel opens at the end of this year, one of the highlights will be Massimo Bottura’s new restaurant, Torno Subito, which promises “to take guests on a journey back to 1960s Italy”. It is the three Michelinstarred chef’s first venture in Dubai and should be every bit as ambitious as you would expect from the man whose restaurant in Italy, Osteria Francescana, was crowned number one in this year’s list of the World’s 50 Best Restaurants.
Akira Back Dubai
Another exciting opening at the W Dubai – The Palm hotel is South Korean chef Akira Back’s new restaurant, which will continue to showcase some of the finest Asian food in the world. Back, whose Seoul restaurant, Dosa, won a Michelin star last year, describes his menu as, “an innovative Japanese cuisine prepared with a Korean accent”.
Dinner by Heston Blumenthal
The highly experimental chef, whose dishes are as much about spectacle as taste, opens his first restaurant in Dubai next year. Housed at The Royal Atlantis Resort & Residences, Dinner by Heston Blumenthal will feature contemporary twists on recipes that date back to the 1300s, including goats’ milk cheesecake. Always remember with a Blumenthal dish: nothing is quite as it seems.
CHATGPT%20ENTERPRISE%20FEATURES
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The specs
- Engine: 3.9-litre twin-turbo V8
- Power: 640hp
- Torque: 760nm
- On sale: 2026
- Price: Not announced yet
Company profile: buybackbazaar.com
Name: buybackbazaar.com
Started: January 2018
Founder(s): Pishu Ganglani and Ricky Husaini
Based: Dubai
Sector: FinTech, micro finance
Initial investment: $1 million
