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While December 31 may be a random point of lap-time measurement in investment marathons, it does mark the end of the year as we know it – and the end of most fiscal years.

This time, I'm delighted to report that December marked the end of a most satisfactory year, with an aggregate return of some 4.6 billion kroner to our investors and unitholders.

Surprised? You would be, wouldn't you, after the despondence and dejection that reigned a year ago. But that's just the nature of the market. After all, most market movements are simply noisy deviations from a strong long-term trend. And there was certainly a bit of catching up to do after the sorry end to 2018.

Furthermore, I would venture that last year's market fears were exaggerated. At the outset of 2019, there was a significant margin of safety in the stock market: The difference between the S&P 500 earnings yield and the 10-year government bond yield was almost 3.6 percentage points. Of course, this provides no guarantee that stock prices will go up, but it does help buttress the market.

Stock market pricing did increase in 2019, meaning that earnings yields fell in all major markets. But so did interest rates. At 3.2 percentage points, the margin of safety is modestly lower.

Does this entail a prediction that the market will keep going up, despite (yes, despite) increased levels of optimism?

Alas, no. I've learned long ago to abstain from fortunetelling. Whereas long-term returns are more predictable, and indisputably positive, what happens tomorrow is anybody's guess.

The challenge of predicting stock market vagaries is succinctly put in a wonderful quote by behavioral economist Meir Statman, reproduced in the similarly wonderful "The Devil's Financial Dictionary" by Jason Zweig:

The market may be crazy, but that doesn’t make you a psychiatrist.

Meir Statman



Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on, market developments, the portfolio manager's skill, the fund's risk profile, as well as fees for subscription, management and redemption. Returns may become negative as a result of negative price developments.

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