Welcome to 2025, and we hope that you had a well-deserved break and are rested and ready for what this year has to offer.
Investing legend Warren Buffett’s most famous quote is likely ‘Be fearful when others are greedy and be greedy only when others are fearful.’ And yet, we’ve forgotten the Oracle of Omaha’s words of wisdom. No one seems to be fearful today – with global markets reaching all-time highs and sentiment remarkably bullish.
We are now somewhere close to euphoria – which is typically when investors should be fearful. This is not to say that we should sell shares and go to cash. The reality is that we need a stream of good news for markets to keep moving up.
If the news isn’t so good, markets will likely come under pressure. Valuations look on the full side, and the psychology of investors remains very bullish. For 2025, we would be very concerned about investing in index tracking funds or themed Exchange Traded Funds over the next few years. A good example of this is the S&P 500, which has the highest concentration of stocks in 100 years (Gold Sachs). There are ten shares that account for 30% of the S&P 500’s total capitalisation. High concentration is a risk, given it is very hard for companies to continue to deliver outstanding earnings growth.
The solution is to invest with investment managers who look for value, pay attention to the quality of what they own and pay a lot of attention to the valuation of what they own. The returns you receive will be a function of the growth in earnings. If you pay too much, then the probability is high that, at some point, you will have a revision of earnings and, with that, a revision in price. That means that you are now sailing into a headwind to achieve your long-term returns.
In summary, it will be a year of treading carefully, carefully selecting stock and being mindful of which asset classes are ‘priced for perfection’.
How we can help you in 2025
Our financial planning and consultancy services are designed to help you build a strong financial foundation, ensuring your ‘financial house’ is in order. Maintaining a long-term perspective while adapting to changing conditions is critical in today’s volatile investment environment.
We collaborate closely with our clients to assess their risk tolerance and develop tailored investment strategies that align with their goals. By embracing opportunities and minimising unnecessary risks, we help you implement strategies that empower you to live your life by design.