In search of decent investment returns we are told to buy low and sell high. This usually means being able to call the inflection points in markets for financial assets. April's cover story goes into more detail about this. 

However, markets can stay irrational for longer than you can stay solvent, to borrow John Maynard Keynes’s quote (pictured). In other words, if you take an opposing view to the majority of investors, you could lose your shirt. That applies whether you take a long or short position on assets. But most private investors are in the ‘long’ game.

First, the rebound in property. The average national house price is now just 5 per cent lower than its 2008 peak, according to data from LSL Acadametrics. Yet Land Registry data for England and Wales shows annual gains have been falling: from 10 per cent in May to zero in February. Expect this trend to accelerate as austerity measures are intoduced and interest rates rise. Ed Stansfield, chief property economist at Capital Economics, reckons a 0.75 per cent rise in rates over the next year would add 8 per cent to the average mortgage payment. 

Meanwhile, the consultancy says London house prices are one-third above their long-run average. Should the government succeed in rebalancing the economy away from London-centric financial services towards regional manufacturing in the longer term, the London premium will surely fall. 

Capital Economics has been gloomy on house prices for a very long time, so it’s fair to say its forecasts have fallen victim to the aforementioned irrationality of markets. But I’ve no doubt they will be proved right in the long run.

As for UK commercial property, the focus on returns has switched from capital gains to income, which historically has formed the backbone of gains. Forecast total returns for 2011 of 5 to 6 per cent and around 9 per cent for 2012 and 2013 seem realistic (see Analyse Money on page 67 for more), but the value play was undoubtedly in the middle of 2009, rather than now.

What about government and corporate bonds? An annual yield to redemption of 3.6 per cent for the benchmark 10-year gilt offers no compensatory value for the dire inflationary and fiscal outlook for the UK, or most of the developed world.

Ten-year US Treasury bonds pay even less, at 3.4 per cent. Renowned US bond investor Bill Gross at Pimco, the world’s biggest bond fund manager, announced in the second week of March that Pimco has dumped all its Treasury bonds. In broad terms, UK and US government bonds need to be yielding nearer 6 per cent to be offering anything in the way of value, while inflation-linked bonds offer protection rather than value. 

Investment-grade corporate bonds don’t offer much in the way of value either. Big, solid corporations have become the torchbearers of fiscal discipline. Their balance sheets are seen as safer than many government issuers and the interest rates the market demands have fallen as a result. 

They may offer better value than sovereign debt, but to get a better yield, investors will need to move up the risk curve into high-yield corporate bonds and local currency bonds from developing markets.  

That leaves shares and commodities. Precious metals aside, most private investors tend to get their exposure to commodities through individual shares  and collective funds.

While stock markets have fallen from recent highs, they have held up better than I had expected. Take the UK’s FTSE All-Share index. It was at 3026 on 11 March, a 5 per cent gain on the 2878 level of a year earlier. But we can also add in dividends of 3 per cent over the year to that return. However, as Barry Riley explains on page 32 of April's Money Observer, shares will not be immune to soaring bond yields.

I’ve been quite bearish about the short-term prospects for shares for a while. On a personal level, I’ve been holding back on my pension fund’s exposure to shares since November, convinced that the ramifications of the financial crisis have not been fully realised. Yet I have concluded that it’s very difficult to catch the market’s inflection points. I’ve plenty of time before I can take pension benefits, so recent market weakness (before Japan’s awful disaster) compelled me to take the plunge. I’m now fully invested in low-cost funds that invest in global smaller companies and other shares deemed by the investment managers to offer ‘value’. 

In a post-crisis world, where it will be difficult for broad equity indices to grind out decent gains, and where focusing on fundamental value takes over from speculation, I’m prepared to suffer the slings and arrows of outrageous fortune and hope that fortune favours the brave.  

Moneyobserver.ed@moneyobserver.com