Long Good Buy

PETER C. OPPENHEIMER has 35 years of experience working as a research analyst. He is chief global equity strategist and head of Macro Research in Europe for Goldman Sachs. Prior to joining Goldman Sachs, he worked as managing director and chief investment strategist at HSBC and was previously head of European strategy at James Capel. Prior to that, he was chief economic strategist at Hambros Bank. Peter began his career as an economist at Greenwells in 1985. He enjoys cycling and painting.

• Acknowledgements xiiiAbout the Author xviiPreface xixIntroduction 1Part I: Lessons from the Past: What Cycles Look Like and What Drives Them 9Chapter 1: Riding the Cycle under Very Different Conditions 11Chapter 2: Returns over the Long Run 29Returns over Different Holding Periods 31The Reward for Risk and the Equity Risk Premium 35The Power of Dividends 38Factors That Affect Returns for Investors 41Market Timing 41Valuations and Returns of Equities versus Bonds 43The Impact of Diversification on the Cycle 45Chapter 3: The Equities Cycle: Identifying the Phases 49The Four Phases of the Equity Cycle 50Mini/High-Frequency Cycles within the Investment Cycle 58The Interplay between the Cycle and Bond Yields 61Chapter 4: Asset Returns through the Cycle 63Assets across the Economic Cycle 63Assets across the Investment Cycle 66The Impact of Changes in Bond Yields on Equities 68The Point of the Cycle: Earlier is Better 72The Speed of Adjustment: Slower is Better 74The Level of Yields: Lower is Better 74Structural Shifts in the Value of Equities and Bonds 76Chapter 5: Investment Styles over the Cycle 81Sectors and the Cycle 83Cyclical versus Defensive Companies 85Value versus Growth Companies 90Value, Growth and Duration 92Part II: The Nature and Causes of Bull and Bear Markets: What Triggers Them and What to Look Out For 97Chapter 6: Bear Necessities: The Nature and Shape of Bear Markets 99Bear Markets Are Not All the Same 100Cyclical Bear Markets 106Event-Driven Bear Markets 107Structural Bear Markets 109Interest Rate Cuts Have Less Impact on Structural Bear Markets 111Price Shocks: Deflation is a Common Characteristic 113Belief in a New Era/New Valuations 113High Levels of Debt 114Equity Market Leadership Becoming Narrow 114High Volatility 115The Relationship between Bear Markets and Corporate Profits 115A Summary of Bear Market Characteristics 117Defining the Financial Crisis: A Structural Bear Market with a Difference 118Finding an Indicator to Flag Bear Market Risk 119Typical Conditions Prior to Bear Markets 121A Framework for Anticipating Bear Markets 124Chapter 7: Bull’s Eye: The Nature and Shape of Bull Markets 127The ‘Super Cycle’ Secular Bull Market 1271945–1968: Post-War Boom 1291982–2000: The Start of Disinflation 1312009 Onwards: The Start of QE and the ‘Great Moderation’ 133Cyclical Bull Markets 134Variations in the Length of Bull Markets 136Non-trending Bull Markets 138Chapter 8: Blowing Bubbles: Signs of Excess 143Spectacular Price Appreciation . . . and Collapse 146Belief in a ‘New Era’ . . . This Time is Different 150Deregulation and Financial Innovation 157Easy Credit 160New Valuation Approaches 161Accounting Problems and Scandals 163Part III: Lessons for the Future: A Focus on the Post-Financial Crisis Era; What has Changed and What It Means for Investors 167Chapter 9: How the Cycle Has Changed Post the Financial Crisis 169Three Waves of the Financial Crisis 171The Unusual Gap between Financial Markets and Economies 174All Boats Were Lifted by the Liquidity Wave 178The Unusual Drivers of the Return 179Lower Inflation and Interest Rates 180A Downtrend in Global Growth Expectations 182The Fall in Unemployment and Rise in Employment 183The Rise in Profit Margins 185Falling Volatility of Macro Variables 187The Rising Influence of Technology 189The Extraordinary Gap between Growth and Value 190Lessons from Japan 196Chapter 10: Below Zero: The Impact of Ultra-Low Bond Yields 201Zero Rates and Equity Valuations 206Zero Rates and Growth Expectations 208Zero Rates: Backing Out Future Growth 210Zero Rates and Demographics 215Zero Rates and the Demand for Risk Assets 217Chapter 11: The Impact of Technology on the Cycle 221The Ascent of Technology and Historical Parallels 222The Printing Press and the First Great Data Revolution 223The Railway Revolution and Connected Infrastructure 224Electricity and Oil Fuelled the 20th Century 226Technology: Disruption and Adaption 226Technology and Growth in the Cycle 227How Long Can Stocks and Sectors Dominate? 231How High Do Valuations Go? 233How Big Can Companies Get Relative to the Market? 235Technology and the Widening Gaps between Winners and Losers 238Summary and Conclusions 241References 249Suggested Reading 259Index 265