Optimism pays

Views & insights

Ian Quigley, Head of Investment Strategy, reflects on the challenges investors have faced over the last few years and discusses our current outlook.


24 April 2024 | 9 minute read

Download Optimism Pays April 2024 PDF

The last few years haven’t been especially easy for investors. We’ve had to navigate unprecedented global lockdowns, the re-opening of the economy, rapidly rising inflation, and a step change in interest rates.

It has also been immensely challenging for the businesses we invest in, whether we own them directly or via funds. Management teams have had to navigate multiple environments and one of the ‘weirdest’ business cycles in history, and they’re still having to do so.  

As the economy reacted to interest rates we hadn’t seen since the global financial crisis, avid market watchers may recall the absolute certainty financial media had at the end of 2022 that we would see a recession in 2023.

There was a very clear consensus that the only way central banks could get inflation under control was to create a recession and ‘slack’ in the economy. The price would have to be paid for fiscal and monetary policy largesse, to paraphrase the oddly sacrificial tone of the time.

Yet there hasn’t been a recession in the U.S., the world’s most important economy, which continues to positively surprise.

Why were so many people so wrong?

It’s easy to throw out answers, but perhaps before assessing why the economy has been so resilient, we should reflect on whether it’s ever really possible to time the economic cycle. 

The economy is complex, and it’s important to recognise this, predicting the future is a risky business. Perhaps we can augment our approach along the way, but the real value is in staying invested for the long term.

Whilst this may be not be all that insightful, the acceptance of unpredictability is central to our approach and ultimately, long-term investing success, at least in our view.

This is why we place so much emphasis on quality and durability.  If we want to enjoy good long terms, we need to be able to endure difficult markets.   

Quite simply, it is much easier to look through downturns, and take advantage of them, when we invest in higher quality assets.

Looking back at our view in late 2022, we did not offer certainty. We assigned a probability to recession, but we also recognised this was an entirely unique cycle. 

We’ve never shut down the entire economy, cut interest rates to zero, introduced massive fiscal stimulus and re-opened the economy over a two-year period before.  

Offering definite views in such an environment seemed irresponsible to us. Sure, be cautious if it’s right for you, but accept that you simply couldn’t know what would happen.

However, we did know the consumer in the developed world was in a very strong position, and we knew that businesses had been preparing for a downturn. Governments were also taking a much more active role in the economy, via fiscal stimulus, a notable change from the post-financial crisis years.

Whilst the rise in interest rates was impacting more leveraged parts of the economy, our analysis suggested this was unlikely to cause a wider or systemic problem beyond a slowing economy.   

The apparent resilience of the economy and the simple fact the market had already experienced around a 20% decline in 2022 gave us grounds for optimism. We debated whether the prevailing pessimism was priced in.

Valuations were also much improved at the end of 2022, and future returns looked pretty good across asset classes.

As it turned out, inflation also came down quite rapidly from its more troublesome highs. Whilst it hopefully has further to decline, prevailing levels have not previously been problematic for equity market valuations.

AI leads the way

We’ve also seen an investment boom in artificial intelligence (AI), which is leading to real earnings growth across the technology sector. We’re not saying we know how this plays out from here, but the move so far seems rational, and we certainly don’t believe it’s a bubble.  

As we’ve discussed before, businesses that can leverage their proprietary data sets look especially well positioned to benefit from advances in AI. This is a focus for us.

All eyes on interest rates

With respect to interest rates, we’ve seen a step change from the very low rates of the past decade, and we need to reflect on how this impacts the economy and the valuation of assets.

Private individuals have successfully deleveraged over the past 10 to15 years and are now in quite a strong financial position. Prevailing interest rates are arguably consistent with the current growth of the economy and while rates are likely to fall over the coming year, it seems very unlikely that we’ll return to the ultra-low rates of the 2010s.

This is a big adjustment for more leveraged sectors of the economy, and it’s been a problem for owners of government bonds over the past three years. However, the challenges seem manageable and looking forward, government bonds now offer much better potential returns compared to the last decade.

The path forwards

Overall, it does seem to us that nominal growth, inflation and interest rates will end up being higher this decade than the last. The level of interest rates and bond yields we see today are consistent with this view and we don’t believe they present a challenge to equity valuation when set against higher growth. In stating this, we should again recognise the challenge of prediction and our investment success shouldn’t be dependent on this view.

The devil’s advocate to my point on leverage sustainability, is the high level of government debt and whether this, at some point, will cause a problem. It may well do.

In our view, if you are concerned about this, we suggest you should own some assets, as history tells us governments tend to inflate away their debts. Today’s euros are very unlikely to have the same purchasing power in a decade’s time.

Today, we think we’re actually in a pretty good position. Whilst equity market valuations have risen somewhat, it’s reasonable to believe earnings growth will support this, as the overall economic picture looks fairly sound.

No doubt there is plenty to be concerned about, not least the geopolitical situation, but I can’t recall a time when we didn’t have geopolitical concerns.

A correction for equity markets also wouldn’t surprise us. Markets have been quite strong over the past few months and to see some retracement of those gains would be entirely consistent with normal market behaviour. With our longer-term hats on, we would welcome some market weakness.

When we look out longer term, we are optimistic. For as long as I’ve been writing this commentary, I’ve described ourselves as pragmatic optimists and we really try to stay true to this. It wasn’t easy to stay optimistic through 2022. Visions of the inflationary 1970s environment loomed large and filled our inbox.

However, we endeavoured to stay rational and to trust our process. We’ve also learned a lot from the experience of the last few years and reflected on how we can improve.

Our optimism isn’t based on a naive sense of hope, it’s based on logic and history. We believe the capitalist system will continue to generate growth and create wealth, which will in turn support future growth and wealth.

The best way to protect and grow our clients’ capital is to invest in assets that support and benefit from this system. No doubt we’ll face future challenges, but if we face them with humility, process, and optimism, we are confident we’ll endure and deliver on our clients’ objectives.

That may seem a touch dramatic, but it has been a pretty remarkable few years, so please forgive me if I indulge in a little drama.

As always, please do not hesitate to contact us to discuss our views further.

Ian Quigley
T: +353 1 2600080
E: ian.quigley@brewin.ie



Brewin Dolphin Wealth Management Limited trading as RBC Brewin Dolphin is regulated by the Central Bank of Ireland. For UK clients only: RBC Brewin Dolphin is deemed authorised and regulated by the Financial Conduct Authority. The nature and extent of consumer protections may differ from those for firms based in the UK. Details of the Financial Services Contracts Regime, which allows EEA-based firms to operate in the UK for a limited period to carry on activities which are necessary for the performance of pre-existing contracts, are available on the Financial Conduct Authority’s website. Registered office: Number One Ballsbridge, Building 1, Shelbourne Road, Dublin 4, D04 FP65. Registered in Dublin, Ireland No. 235126.

This publication should be regarded as being for information only and should not be considered as an offer or solicitation to sell, buy or subscribe to any financial instruments, securities or any derivative instrument, or any other rights pertaining thereto (together, ‘investments’). This publication is classified as a ‘marketing communication’ in accordance with the European Union (Markets in Financial Instruments) Regulations 2017. This means that (a) it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and (b) it is not subject to any prohibition on dealing ahead of the dissemination of investment research. RBC Brewin Dolphin does not express any opinion as to the present or future value or price of any investments referred to in this publication. This publication may not be reproduced without the consent of RBC Brewin Dolphin.

The information contained in this publication has been compiled from sources believed to be reliable, but, neither RBC Brewin Dolphin, nor any of its directors, officers, or employees accept liability for any loss arising from the use hereof or makes any representations as to its accuracy and completeness. The information contained in this publication is valid as at the date of this publication. This information is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the matters discussed herein.

This publication does not constitute investment advice and has been prepared without regard to individual financial circumstances, objectives or particular needs of recipients. Readers should seek their own financial, tax, legal, regulatory and other advice regarding the appropriateness or otherwise of investing in any investments or pursuing any investment strategies.

An investment in any of the investments discussed in this publication may result in some or all of the money invested being lost. Past performance is not a reliable guide to future performance. To the extent that this publication is deemed to contain any forecasts as to the performance of any investments, the reader is warned that forecasts are not a reliable indicator of future performance. The value of any investments can fall as well as rise. Foreign currency denominated investments are subject to fluctuations in exchange rates that may have a positive or adverse effect on the value, price or income of such investments. Certain transactions, including those involving futures, options and other derivative instruments, can give rise to substantial risk and are not suitable for all investors.

RBC Brewin Dolphin (or its directors, officers or employees) may to the extent permitted by law, own or have a position in the investments (including derivative instruments or any other rights pertaining thereto) of any issuer or related company referred to herein, and may add to or dispose of any such position or may make a market or act as a principal in any transaction in such investments or financial transactions.

RBC Brewin Dolphin’s conflicts of interest policy is available at www.brewin.ie/conflicts-policy-summary

Warning: The value of your investment may go down as well as up. You may get back less than you invest.
Warning: Past performance is not a reliable guide to future performance.
Warning: If you invest in this product you may lose some or all of the money you invest.
Warning: This product / service may be affected by changes in currency exchange rates.
Warning: The income you get from this investment may go down as well as up.

You may be interested in


Investing 3 min read


Market news 3 min read

What’s my return?

Investing 3 min read
What’s my return?