Investment Newsletter September 2017

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Investment Newsletter September 2017

Hubble bubble We have been relatively cautious about stockmarkets for a while. However, that doesn’t necessarily mean that we are in the midst of a bubble. A bubble is usually defined as a rapid escalation of prices in a particular sector, far in excess of its intrinsic value. It is usually characterised by market “euphoria” where any bad news is ignored and positive data is jumped upon and seen as proof that prices will rise even further.

Mike Deverell Investment Manager

Often with bubbles we hear talk of new “paradigms” and arguments given why different rules apply to that asset class which means that it’s not as expensive as it appears! Whilst we think markets are looking relatively expensive, we don’t see many signs of a classic bubble

in stocks. If we did, we’d be much more cautious than we are now! Our view on markets is fairly simple. When they look cheaper we hold more in equities. As they start to get more expensive we reduce exposure, and we carry on doing that in small stages. At present we hold quite a lot less in equity than we usually do. Chart 1 shows the price/earnings (PE) ratio of the UK stockmarket since the financial crisis (blue line). This ratio simply takes the total value of all stocks in the market and divides it by their total earnings (or profits). The orange line is the FTSE 100 over the same time period (right hand scale).

Equilibrium Asset Management LLP (OC316532) and Equilibrium Investment Management LLP (OC390700) are authorised and regulated by the Financial Conduct Authority and are entered on the financial services register under references 452261 and 776977 respectively. Registered Offices: Brooke Court, Lower Meadow Road, Handforth Dean, Wilmslow, Cheshire, SK9 3ND. Both companies are registered in England and Wales.


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