An expert has warned this year will be a tough one for share investors.
According to Forager Funds chief investment officer Steve Johnson, share markets have now gone too far ahead of economic recovery from COVID-19.
"I think it's going to be a difficult year," he said on a Forager video.
"People need to expect those returns from equities to be lower than they've been historically from today's pricing level. That makes it more difficult."
The major dark cloud in 2021, according to Johnson, is interest rates heading up in response to a steep economic recovery out of the current recession.
"If we're ever going to see pressure on interest rates going up and inflation, it's going to be over the course of the next two years," he said.
"I think that's the big risk for financial markets of all sorts out there, that interest rates start to pick up over the next few years and that people start looking at 5% and 6% returns on equities and saying 'Well, I can get 3% on a bond portfolio now. I want more.'"
His perspective is a contrast from other finance experts who have predicted a boom year for equities in 2021.
BetaShares chief economist David Bassanese said last month earnings forecasts have "held up remarkably well in recent months".
"We are looking at 15 per cent growth in forward earnings by end [of] 2021 if current expectations hold up."
"We're really positioning ourselves to be [in the] short duration we own businesses that are going to give us cash flow in the short to medium term, rather than using low discount rates to justify high prices for businesses down the track."
Buying in dips takes nerves of steel
During last year, the Forager team took advantage of the volatility to pick up some bargains during the dips.
But that takes courage because no one knows when the market's hit the bottom until afterwards.
"At the times when the best opportunities are there, it is going to be stressful," Johnson said.
"That's probably my most important role as CIO here that I get up in those times of crisis and I say to our whole team: 'Everyone is panicking, it is time for us to invest.'"
He added this is why it's important during quiet times to prepare a target list of stocks one will buy if the market sinks.
"[Being] ready to pull the trigger in those environments is the most important thing that you can do to take advantage of it."
Johnson recalled how his team was able to pick up shares of a very prominent US tech company during the panic last March.
"We copped a lot of criticism for our investment in Uber Technologies Inc (NYSE: UBER) at US$24 a share. It's trading north of US$50 now and it really was widespread panic in that part of the market that nobody was ever going to start using that company's products again," he said.
"I don't think anyone that actually sat down and did a proper analysis of what that business was worth at the time would have concluded it was worth less than US$24."
The share price for Forager Australian Shares Fund was at $1.15 a year ago but traded at $1.38 as of late Monday afternoon.