Saga of Financial Markets


Last updateSat, 29 Jul 2017 12am

Back You are here: Home Blog Blog Update On the Markets What history can tell us?

What history can tell us?

Those who cannot remember the past are condemned to repeat it.” -- George Santayana (1863 - 1952)

The chart below illustrates what happened between 1960s – 1980s:


What happened? The index – S&P 500 did not exceed peak for 17 years. Classic theme of long term buy and hold strategy was proven disastrous! Well, it would be naïve to believe the same would be taking place, but what if it were to happen again in a similar way?

How should we address the challenge ahead? The answer is active asset allocation! Please see the chart below illustrating the performance of various asset classes between 1995 to 2011 :


How has bonds, equities and cash performed since 1985?


From the above, we observe that:

1 Winners (as in asset class) rotate every year.

2 It is ‘dangerous’ to ‘bet’ on last year winners, as they could turn up to be the worst performing asset class the next year as we can see from the illustration of oil performance.

3 Bonds’ performance has stayed “resilient” even during the sharp fall of the equities market in Year 2000 and 2007.

The morale of the story is: if history were to repeat itself, active asset allocation strategy would be the way forward in mitigating risk and the reward. In the “New Normal” world, the role of “active” asset allocation would be more significant than we were in the “old” normal era.

“I don’t think there’s a risk-free asset anymore. The question is whether you are getting rewarded for the risk you are taking. Yes, things are bad, but I don’t think the world is ending either. There are always opportunities, and I think if you have a long-term perspective, you can be rewarded.” - Dr. Michael Hasenstab