Classical economists often incorporated human behaviour into their thinking. But in the 1960s and 1970s, homo economicus - the great rational agent of economic theory - was born. It was not until the 1990s that the link between human behaviour and economics began to be re-established.
Value investing experienced one of its worst underperformances in the decade since the GFC. As we enter the 2020s, valuations heavily favour value stocks and the data shows that value has a greater than 85% chance of outperforming growth from here.
Moving into the 2020s, global equity portfolios should be concentrated and highly selective, positioned to address both fundamental changes in the global backdrop and vulnerabilities in the successful styles of recent years.
Financial decisions are among the most important life-shaping decisions we make. Two recent research papers provide further evidence as to how practitioners can help improve clients' financial decisions.
Australia has enjoyed nearly three decades of uninterrupted economic growth, but there are sound reasons to question whether this will continue in the future. Five core shifts – industry, urban, energy, land and culture – are needed for Australia to reach its full potential.
A deliberate blend of emerging market debt and high yield opens up another universe of liquid, high income opportunities which can offer relative stability in returns and deliver the potential of higher income.
Trailing a rising market can feel like missing out - but pure pursuit of highest returns can have unintended consequences. Protecting capital on the downside has a material impact on total returns.
Prior to the GFC, you could build a retirement portfolio on the back of a 7% yield, virtually risk free. Today, without that free kick, a 7% yield is a much harder job, especially from a risk-budgeting perspective.
I believe time allows signals to surface amidst the ubiquitous noise. In the spirit of the hit Fleetwood Mac song "Don't Stop" that urges a future focus, I offer this year's set of five-year-forward global predictions.
Somehow the optimal growth/defensive asset split from the 1980s is still considered "balanced" today - never mind that for the first time since the 1930s, the cost of capital is stubbornly static at a negative real return.
One of the best performing equity sub-asset classes over 20 years is seemingly being ignored. Investors should seriously consider an allocation to Global SMID equities in their portfolios.
We can never know for certain how the macro backdrop will change or which investment style will dominate. But focusing on uncovering fundamental earnings leadership tunes out market noise, and enhances returns.