There is a new approach to investing, and it is catching on. ABA. The result is that a number of the opportunities highlighted in recent years are making steady progress. READ ON.
ABA is the new investment strategy. Anything But America. Of course it isn’t yet occurring in scale, but steadily and stealthily, lest the wrath of Trump is unleashed upon your investment institution.
Money which would have found its way into the US financial markets over the last year or two is going elsewhere. For example, to China and Japan, to UK and Europe, to gold. This is working well for us.
There have been four pillars to our investment approach in recent years:
- Avoid the most obvious accidents-waiting-to-happen, notably the US stock market and technology bubble, but also an array of bonds
- Focus on what is relatively cheap
- Seek out what might have resilience and attraction in this world of both unprecedented valuations in the pivotal US stock market and unprecedented global uncertainty, both militarily and politically
- Strictly apply our stop-losses, to prevent unacceptable losses for clients, because even the cheapest and most resilient asset classes are vulnerable to the US equity bubble bursting or meltdown in global bond markets
Pillars 1 and 4 were essential throughout this period because of the scale of losses ahead, informed by multiple historical precedents. Pillars 2 and 3 have come into their own in the last 12 months as investors looked to sidestep Trump’s US.
Gold has had an excellent run year-to-date, up 40%, and there is more potential. Gold uptrends tend to end with an investor mania, as everyone rushes in. We are not close to that at the moment.
The UK stock market remains cheap, which is why it hasn’t fallen much or at all recently despite political musical chairs – stronger leadership would certainly be helpful, along with more control over noisy Think Tanks full of half-baked ideas. The flat economic growth has also encouraged investors focussed on 2026/7 on the assumption that the economy will benefit from (substantial?) rate cuts.
China is also cheap, and appears to be early in a multi-year uptrend. In the short term it was unmoved by reports that Trump had told the EU that they needed to impose 100% tariffs on India and China for buying Russian oil. As is increasingly the case, Trump was ignored.
US inflation and unemployment both headed up in recent days. This is very unhelpful for the Federal Reserve. Do they deal with inflation and put rates up? Or deal with rising unemployment and bring rates lower? It should prove to be a fascinating week or two ahead for US financial markets.
There is no escaping the risks in the US, acknowledged even by those right at the centre of the mania. OpenAI’s Sam Altman recently told his audience “Are investors over excited? My opinion is yes. I think some investors are likely to lose a lot of money”.
Investment Stress? Talk To DocGPT
Last time I said:
“There is nothing new when investing. One constant is the behaviour of investors, swinging from extreme fear to extreme greed and complacency – these are the bookends of cycles approximating a decade. Fill your boots at one end, take care at the other end.”
It is widely understood that the pivotal US market is at the “greed and complacency” end of that behaviour spectrum, with the risk 50%+ from which it might take years to recover.
Let me assume a theoretical model. Over a theoretical decade, years 1 and 2 might be dominated by fear and very cheap valuations – this is when we fill our boots. Years 3-8 are a steady uptrend and you enjoy reliable profits from year to year.
Years 9 and 10 are years of extremes, which are measurable by valuations and observable by investor behaviour. We then dig into the historical precedents, and this gives some clarity as to the most likely outcome. For example, for where the pivotal US stock market is today, minimum falls of 50% appear to be baked in.
But timing of that event? Nobody knows. We have been saying that for some time. But that doesn’t make it less frustrating and stressful for you! For us too.
It’s worse if your less risk-conscious friend says “But I’ve made great profits”. As Kindleberger says in one of my favourite books:
“There is nothing as disturbing to one’s well-being and judgement as to see a friend get rich”
Of course we don’t have the benefit of hindsight. But why not use artificial intelligence (AI) so that we can fine-tune that timing issue to perfection, and get out the day before the market plummets?
It’s not as daft a question as it sounds, and answering it does shine a light on what investing is all about. A recent article on doctors and the use of artificial intelligence provides an illuminating parallel. The writer, Stephen McBride, began:
“At 5am our 7-month-old son had woken up with angry red blotches all over his body. Measles? Instead of going to A&E, I remembered my friend’s sage advice: You should ask AI.
I snapped two photos of the rash and asked ChatGPT to evaluate. In less than five seconds, ChatGPT said it was likely a common viral infection, nothing more serious. It also gave me specific warning signs that would warrant a trip to the A&E.”
We’ve probably all learned to be wary of Googling medical symptoms, but this is very different from what we might call “Doctor GPT”. The writer continues:
“Doctor GPT is already much better than a human doctor… This is not hyperbole. ChatGPT aced the United States Medical Licensing Exam, the grueling, three-part marathon required to practice medicine.
And when Microsoft pitted its AI against a team of human specialists on the toughest cases in the New England Journal of Medicine, the human experts got the diagnosis right 20% of the time. In contrast AI scored 85%.”
AI beat the human experts by a multiple of 4. Wow. Stephen continues:
“AI is almost perfectly suited to solving complex medical mysteries. Biology is staggeringly complicated. A single human genome contains three billion letters of code. The number of potential interactions between proteins in our bodies is infinite.”
No human brain can even begin to grasp it all. But AI can read every medical paper ever written and quickly spot patterns no human could hope to mimic, not even the most highly qualified and experienced doctor.
“Think about it this way. When you ask a doctor, “How serious is it?” you’re getting an educated guess based on that one doctor’s personal experience. In contrast, when you ask AI, you’re tapping into a system that’s “seen” a million times more cases than the most experienced doctor.”
Investment is also “staggeringly complicated”, but there is no science to solve the “complex investment mystery”, because so much of what occurs in financial markets is random.
Medicine is governed by biology. Human bodies are extraordinarily intricate, but they follow rules of chemistry, physiology, and genetics. With more data and deeper understanding, AI can help by spotting patterns doctors miss, cross-referencing huge amounts of medical literature.
In contrast, financial markets are not just complex systems but random ones. Prices reflect the aggregate decisions of millions of people responding to new information, expectations, and emotions. Much of the movement is noise, not signal. As a result future prices are not reliably predictable. The problem here is not merely incomplete knowledge, but fundamental randomness.
As ChatGPT put it to me:
- In medicine, AI is like turning on brighter lights in a dimly lit room. The more light you have, the more of reality you can uncover.
- In financial markets, AI is more like trying to forecast the roll of a dice. You can never eliminate the randomness, which is unknowable by its nature.
Sounds like our job is impossible! But it isn’t. There are enough precedents to guide us through that 10 year model as I set out above, and we know that at the “greed and complacency” stage it will invariably be a little frustrating.
But once the bubble bursts and the “reset” has occurred, it will be very exciting as the cycle starts over again.
