2019 has been a year of amazing investment returns for many asset classes, but what have we learned from this year?
You could have been invested in a wide range of assets to do well this year. The ASX share market has done very well. The US share market has done very well. The Asian share market has done well. The global share market has done well. The Australian property market has done well.
What have we learned?
Sane investing still exists
This bull market has been running for around a decade. At some point it will come to an end, but is it a few months away or a few years away? Many investors have been expecting the end to come fairly soon.
One of the main factors that causes the end to a bull market is crazy valuations and excessive expectations. In other words, a bubble.
This year we have seen investors behave prudently. The WeWork IPO showed us that stock market investors are still behaving sensibly when it comes to these new-age businesses. We've also seen some IPOs in Australia that struggled to get off the ground like Latitude.
Sure, there are some shares on the ASX with high price/earnings ratio like Pro Medicus Limited (ASX: PME) and WiseTech Global Ltd (ASX: WTC), but they are growing and generating profits.
Don't try to make predictions with politics
It's never a good idea to try to base your investments on political expectations. You never know what's going to happen. Who thought Donald Trump would win the US election? Which polls were suggesting that the Liberals would win the Australian election? How many people thought that Boris Johnson would win a large majority?
Don't apply a 0% chance to something that is actually possible within a margin of error.
I think it's best not to invest based on any political expectations. The only thing I'd be wary of is shares like healthcare shares in the US or Australia such as Medibank Limited (ASX: MPL) or Ramsay Health Care Limited (ASX: RHC) that could have different outlooks if either side won.
Interest rates are going to stay lower for longer?
We can make all the predictions in the world about what's going to happen with investments, but central banks can really change the investment landscape with interest rate changes if they are lower than expected.
The US economy is about as strong as it could possibly be with very low unemployment. It seems highly unlikely that any central bank will be increasing rates any time soon, except perhaps in the EU where negative interest rates may disappear.
This could be bad news for banks like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) who rely on healthy net interest margins (NIMs) for profits to pay their dividends.
Foolish takeaway
In conditions like this I think it's best to just stay invested in the highest-quality businesses for the long-term.
