History Repeating Itself

Charles Drace of Socrates Fund Management, bases his investment decisions on historic patterns. Just like the bear markets of 1903, 1932 and 1964, he says the 2008 bear market still has a long way to fall before it hits rock bottom.

His investments are determined on the assumption that gold, oil, metals, food and cotton have a negative correlation to the share market and when the share market goes down they go up. He reveals, "Our whole strategy is reliant on history. Most fund managers will tell you if you start in the market don't worry about the dips because it will always come back higher.”

But over 130 years of history Drace says markets fall a long way during down times - often 75 to 94 per cent. And on average they go down for 16 to 18 years.
If that is the case, he believes, the share market will continue a down-wards trend until about 2014 to 2018. During that time he will be investing in commodities.

And when the commodities start to go down again he will close his funds and switch back to investing in the share market again.
He claims, "When the share market is going up people don't want to put money into commodities - they don't want to spend money getting oil or mining because money can be made easier elsewhere."

Gold has gone up a lot earlier this year hitting new highs although it has come back down to US$800 an ounce.

But Drace reckons this is still cheap on a historical level and it has a long way to go yet - his estimates are US$3000 an ounce but he says that will take about 10 years to play out.

According to independent rating agency Morningstar the Income Unit Trust was up 8.2 per cent while the Gold and Metals Unit Trust was up 12.9 per cent and his Performance Unit Trust was up 15.03 per cent in the year to July 31 after fees and taxes.

Drace says his strategy comes from a lot of time spent doing research on big trends, socio-economic trends; how much society affects the economy and how much the economy affects society.

Author: Jo Amey