They are the words of Henry Kissinger, who recently passed away. He also directed the carpet bombing of large swaths of Cambodia and was then awarded the 1973 Nobel Peace Prize for his role in negotiating the end of the Vietnam War.
Still, his words are useful when considering where the stockmarket will be heading in the new year. Let's face it, trying to predict what markets will do over the next twelve months may be fun but the chances of getting it right is probably close to zero. All that I do know will certainly happen in the new year is that markets will continue doing what they have always done, which is to constantly wrong-foot unwary investors.
Currently the trend is up and I'm happy to go with the flow but in the long run I stick to mean-reversing which is a financial theory positing that asset prices and historical returns eventually revert to their long-term mean or average level.
I watch just a couple of well-traded stocks - BHP and one of the big banks - and try to buy them when they appear to be below their mean and then wait, sometimes for months, before I sell all or part of them again when they appear to trade above their mean. Then I buy back in again when they appear to be trading below their mean, ad infinitum.
It works for me because I know that mean-reversion is the one constant that will keep happening, regardless of what this or that market does.
