The past decade may have been all about Bitcoin and technology, but their strength has relied on abundant liquidity. Can the successful strategies of the past decade tell investors anything about the future?
- Bitcoin is up 162,981.8% over the past decade, the top-performing asset class
- Bitcoin and technology have slumped over the past 12 months
- Warren Buffett’s approach stands out, but has been flattered by the strong Dollar
It won’t be news to investors that the strategies that served them well prior to 2022 have been a disaster ever since. New research from AJ Bell comparing performance over ten years and one year shows how extreme that about-turn has been. But is there any strategy that has worked in all market conditions?
The biggest winners of the past decade will come as no surprise: Bitcoin is up an eye-watering 162,981.8% for the lucky (wealthy) people who invested in 2012. Technology has been far and away the most successful equity strategy, rising 466.3%. In an environment of abundant liquidity taking plenty of risk has been the best approach.
However, the one year performance of these assets shows the extent to which they depended on that liquidity to move higher. Of the 27 investment strategies analysed by AJ Bell, these top two have fallen to the bottom of the league table over the past 12 months, with Bitcoin down 60% and technology down 27.8%.
Given that this liquidity is unlikely to reappear, it is worth looking at the strategies that have proved more enduring. Here, one stands out – Warren Buffett’S. He managed 369.7% return over the past decade and then 16.3% this year. That puts him third in 10 year returns and second in one year returns. That said, the strong Dollar has helped his returns for UK investors.
However, for investors who believe that relying on the brilliance of a 92-year old may be a precarious strategy, the other stand-out options have been ‘performance chasing’ and, perhaps surprisingly, the MSCI World Value index. Performance chasing - defined as investors who each year buy the best performing fund sector of the previous 12 months – has been a notably better strategy than ‘bargain hunting’ – buying the worst performing sector. However, bargain hunting has been the best-performing strategy this year.
The real contrarians would now be looking at gilts, which have been a terrible investment over 10 years and one year. UK Smaller Companies would also look like a fertile hunting ground, along with global investment trusts.
The AJ Bell research highlights the difficulties of looking to the past for guidance on the future. The environment is now so profoundly different to that which prevailed in the decade after the financial crisis that it is impossible to suggest that Bitcoin or technology will resume their giddy rise higher. Liquidity is far scarcer, Dollar strength may be reversing and the interest rate environment is less investor-friendly. This past decade has been all about taking risk. The next may be far more nuanced.
