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The article below appeared in today's Business Report.

Introduction

My first note of the year, written in conjunction with Gillian Findlay, considers some prospects that investors might face as they head into the new decade. The noughties turned out to be a decade filled with bubbles and euphoria - technology, commodities, credit, oil, real estate and more. Whilst these bubbles now are in the rear-view mirror, the policies that have been put in place to address the collapse of the most recent bubble series suggest that fresh caution is needed in considering investment prospects.

Nothing succeeds like success

In modern times, the view that success breeds success was first put into print by English writer and dean of the Privy Council, Sir Arthur Helps. In 1868 Helps produced, Realmah, in which he wrote "Nothing succeeds like success." Surely, he didn't know what he was doing at the time. If he did, he might have paused and reconsidered his work because, arguably, his statement represents the roots of what The Economist calls the "management guru industry".

A Strong Rally

Equity markets have enjoyed a strong rally off the low base that was set in the early part of this year. In the case of the US market, for instance, the S&P500 Index has risen more than 55 percent since the low reached in the first quarter of 2009.

The article below, What Can Replace the Efficient Markets Theory?, is the work of FT columnist Jonathan Davis. The article considers the efficacy of the efficient markets hypothesis (EMH) - which continues to be taught widely in business schools despite meaningful empirical support.

Recently I was interviewed by Simon Brown of Classic Talk Radio in his programme JSE Direct. The subject of the interview was a book that stands out on my library shelf, Joel Greenblatt's The Little Book That Beats The Market.

book beats market

Equity Investors Not As Revolted As They Were


“I've seen your revulsion and it looks real good on you...”

Augmenting Price-Earnings Information With Price Inflation Information To Make Better Asset Allocation Decisions

The co-ordinated policy response amongst the world's central bankers has involved an extraordinary loosening of monetary policy since the middle of 2007. As eidence of this, leading lending rates in many parts of the world are at or close to zero percent (Japan, the United States, Canada and the United Kingdom stand out).

The equity market environment reminds me of the opening line to Charles Dickens’ A Tale of Two Cities. For most equity investors, 2008 represents one of the worst years on record. Yet, the massive decline in equity prices recorded across global markets since mid-2007 has dished up some exceptional value. Stocks are cheap if measured by multiples of their earnings, book value or dividends. Value stocks are particularly cheap.

Over the last few years many of my clients at Cannon Asset Managers, and other interested followers of our research, have become familiar with the results of the now 13-year-old study into the merits of value investing in South Africa.