You have just lived through an exceptional part of history. I am not talking about the Covid-19 pandemic, though that does play an important role in what we think of as the “Great Unwind”. Rather, I am talking about the extraordinary period of low inflation over the past few decades.
Many investors are still wondering if now is the time to buy into the winners of the past, as exemplified by the mega-cap technology darlings of the past “The use of quantitative measures derived from historical price volatility as a proxy for risk is nearly universal in modern finance. These models typically have look-back periods of eight to 10 years, in essence calibrating risk on the long period of secular stagnation post the GFC.
The correct question is not should I buy tech stocks now, but what should I buy that is suited to the new environment and is likely to become the performance stock of the future? The answer is wildly different from what many would expect. In a higher-inflation environment it is often energy, value and banking stocks that are well-positioned to outperform.