Consensus

Europe is a mess, everyone agrees: poor demographics, sclerotic and oppressive regulation, political dysfunction. European stocks lost 6% last year as the US gained 13%, about as wide a performance gap as we’ve seen in at least the past 50 years.

So how do we explain this chart: small/mid-cap French stocks are at an all-time high.

Consensus is (almost) always logical, but not always right. There are many very good reasons to avoid/underweight European assets. And it’s certainly possible that investors in small cap French stocks have become detached from reality. But it’s also possible that conditions are not as dire as we think, or that valuations more than adequately reflect this reality.

Overweighting European equities may seem like a heroic leap (and I’m certainly no hero), but when we have a combination of record performance differential, broad negative consensus and a market data point (French small caps) that is at odds with the headlines, investors would do well to remember that it’s often comfortable to be with the consensus, but not always profitable.

• 22 Aug, 2016

  Negative Negative is Positive

  Housing is a small part of the larger economic picture, contributing only about 5% to GDP (although includingÂall ...

• 24 Nov, 2014

  Jobs

  There's no doubt that the headline unemployment rate (5.8%) does not tell the full picture of the job market. ...

• 13 Dec, 2016

  Shock, Part 3 (The End of Pax Americana)

  We are all trying to make sense of the election of Donald J. Trump to the presidency, and a few weeks ago I outlined the ...