Investment Thoughts for 2016
    Category: Column By : Rainer Michael Preis Read : 1263 Date : Wednesday, January 13, 2016 - 07:29:10

    As we contemplate the 2016 investment outlook for Indonesia, it pays to look back and remember that financial markets have an incredible capacity for reacting to news and economic developments in a way that confounds market professionals and private investors alike. The only difference being the latter will admit to being confused, while the former will quickly come up with a few dusty rationalizations.

    At the end of 2015, the markets have priced in a situation for the Indonesian rupiah, some Indonesian stocks and bonds, that is worse than the great financial crisis, worse than the Asian financial crisis, but the fundamentals don’t justify that.

    Economist John Maynard Keynes put it best when he remarked: “Nothing is more suicidal than a rational investment policy in an irrational world.” In the long-run, true value is always revealed but in the short-term, the market and individual stocks and bonds get pushed and pulled by a variety of forces—portfolio rebalancing, rumors, news, investment fads, seasonal tendencies—that have nothing to do with fundamentals.

    Nowhere are the advantages and drawbacks of an iPhone world of instantaneous electronic communications more evident than in the financial markets. A long-term price trend might seem obvious or inevitable in retrospect, but in the short-term, markets are driven by a never-ending stream of “news” like economic reports, statistics and earnings.

    Correctly anticipating the impact of such news, rather than the news itself, is one of most useful skills of the accomplished investor. In financial markets, the impact of the data is not always what it should be (or what we think it should be). What initially appears to be a “bad number” is sometimes followed by a rally of steady buying. Similarly, a report that seemingly underscores economic strength may be met by frantic selling. Investors who have learned to survive and prosper in the markets use this flow of information to form intelligent expectations about the market’s chances / probabilities of trading up, down or sideways. The macroeconomic flow also plays a key role in determining individual sector trends Is it time to rotate out of Telecom stocks into banking stocks?

    As you look at your bank and brokerage statements for the year 2015, it is important to remember that Investment management is an art, more than a science. The broader point is that portfolio construction and assessing the market’s reaction is much more a complicated game of chess than simple checkers. The picture is always changing. It comes into play when expectations about the future have a bearing on present behavior – which is the case in financial markets. Some mechanism must be triggered for the participant’s bias to affect not only market prices but also the so-called fundamentals that are supposed to determine market prices. The fundamentals that you read about in newspaper or research reports are usually useless as the market has already discounted the price. However, if you caught them on early before others, then you might have a valuable “surprise-a-mentals”. The past is fixed and easy to analyze. The future is fluid and uncertain. You have to base your decisions on probabilities in an atmosphere of uncertainty.