Disclosure – Non-substantive Research
This is not substantive investment research or a research recommendation, as it does not constitute substantive research or analysis. With this commentary, Kepler Partners LLP does not intend to influence your investment firm's behaviour.
One of the most memorable Derren Brown specials had a victim hypnotised in a bar, only to wake up in what appeared to be a post-apocalyptic wasteland. It was an amazing illustration of the power of suggestion. The subject eventually even accepted the existence of zombies, which we can only assume he was previously aware are fictional… How could he be led to this point? It seemed to be the total consistency of the environment, the actors and all the information he had around him pointing to this delusion that allowed him to entertain the bizarre thought. Maybe a similar mechanism is at work when it comes to inflation. As long as numbers are presented in nominal terms, time after time, we are prone to overlook, forget, or ignore that we are actually getting poorer so long as our nominal return is behind inflation. In this note, we look at what investors would actually have received in real terms if they had invested in cash through this period of high inflation, and how that compares to real returns from equities. It isn’t a great record, to be honest. And while investors continue to allocate even more to cash and short-dated bonds, we argue that this is the wrong time to be doing so.
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