I must admit I have an affinity with February. Despite the weather it’s probably my favourite month of the year. Might be something to do with being born in a February so long ago my driving licence is being forcibly renewed for only three years, and my GP has just written to me with a warning that my blood group’s about to be discontinued.
My birth coincided with the worst weather since records began, or certainly since Pavarotti had a bash at “I Belong to Glasgow” in Italian. Twenty one years later, studying Climatology in fourth year Geography at Edinburgh University I discovered that February 1947’s severe weather was down to a double depression stuck over the UK for weeks and weeks from the turn of the year. Isn’t it odd I had to wait that long to discover what really happened? Remember that the next time the TV News broadcasts “experts” with instant explanations.
Last February a different type of depression settled over us. Starting after New Year’s Day a blinding hangover hit stockmarkets and investor confidence really hard. Like the weather of 1947 the 2016 winter stockmarket crisis was the worst ever start to a year. But what caused it?
Exactly a year ago “pessimists” were fretting over what they called an “expected hard landing” (whatever that is) in China, doubling it up with “deflation fears” in the West. Anybody noticed that suddenly it’s Inflation Fears, Brexit and Trump that’s renewed their Valium prescriptions? (One good thing about these folks though is that their elbows and rear ends are interchangeable). Confusingly for them, global growth is still expanding. As it does most of the time.
Now, presumably thanks to their constantly wrong predictions of doom, “experts” decree it’s impossible to forecast investment returns. But here’s my observation. Those referred to as “gurus” are the worst of the lot when it comes to predictions. John Mauldin has over a million followers despite saying eight years ago “If you expect a major bull market to develop in this climate you are not paying attention and need your heid examined” (I added the last four words, but you get the drift).
“Dr Doom” Nouriel Roubini, darling of the media said at the time “My predictions for the coming year unfortunately are even more dire.” Echoing his gloomy sentiment was Harry Dent who charges $90,000 a day plus first class air fares from Florida for his services. Who says pessimism doesn’t pay? Harry’s been predicting 50% market falls every year since 2011. Want some good news? He’s at it again now. If he turns optimistic again you’ll be the first to know. As a rough guess I’ll be renewing my new driving licence before then.
Following yet another miserable year of forecasting by “experts” in 2015, when the consensus was optimistic for a brief spell but were wrong once more, by the December they’d gone back to being comfortably glum. (Apologies to Pink Floyd). It was nigh impossible finding anybody with anything good to say about 2016. Which probably explains the following report I read only last week…. “Absolute Return funds topped the retail sales charts every quarter last year butinvestors were wrong footed. 2016 was an annus horribilis for the UK Funds industry.” Faced with doom laden predictions from a quoted majority, net retail investment sales plunged 72% in what “experts” claimed was “an extraordinary and challenging geo-political year.” Really? Tell that to our clients. By the way, do have a look at the recent disastrous returns from Absolute Return funds. You’ll be relieved to know we kept our ten foot bargepoles handy.
Despite clear evidence that if you can be bothered to dig deep you’ll find well managed UK active funds that outperform their peers, the mantra from a lazy consensus is because “you can’t predict future returns” you may as well invest in “cheap passives” that track Index averages. Mmm. In what other area in life would you settle for less than average?
If they were right we would have had to change well-known investment book titles, suggests Prof Jeff Miller, who “luckily” forecast the Dow Jones to hit 20,000 back when it had struggled to 10,000 and the world was a dark place, allegedly. So if you can’t beat average…... “In Search Of Excellence” co-written by management guru Tom Peters would become “In Search Of Mediocrity.” “Market Wizards” would become “Lucky Chancers,” while Benjamin Graham’s all time classic “The Intelligent Investor” would be renamed “The Average IQ Investor.”
As we constantly remind our clients, following the consensus is a recipe for constant disappointment, as history confirms. This month marks the eighth anniversary of an article I wrote on the 23rd February 2009 in the Daily Telegraph giving several good reasons why a new long term Bull Market was round the corner. Ian Cowie, the then Money Editor, could find nobody else willing to write positively. But readers weren’t at all happy. Why is optimism so widely despised?
Following my article, the emails I received that could be shown to ladies and those easily shocked were of a collective opinion that hanging was too good for me, and that people like me should be locked up and the key thrown away. Ten days later (with a stroke of luck presumably) the Bull Market took off and is still intact as I write. In the final paragraph of that article written on the 23rd Feb 2009 I wrote this…… “So there are plenty reasons to be cheerful. Those prepared to take at least a two to three year view, hoping to have decent income and capital gains could do a lot worse than tuck away a selection of good quality UK equity and International Income funds.”
Since then, such a portfolio with net income reinvested doubled the money of optimists in about five and a half years, net of all charges. And beat “cheap UK Index trackers” by 50% over the last eight years. Goodness knows what pathetic deposit returns were earned by those who thought I should be locked up. Shouldn’t say this but sometimes it’s hard not to laugh.
Much of the ammunition I’d gathered which led me to believe it was right to be positive back in February 2009 when gloom prevailed was gleaned from research supplied to us by Ned Davis and his team since 2001. Key within that team is their Global Equity Strategist Tim Hayes who supplied data which pointed to a double digit return for equity investors in 2016. So what does Tim think now? At the time Tim stated, after studying previous secular periods, that patient equity investors could expect double digit returns for 2016 and 2017. So far so good. But nothing is ever that certain in life as we all know. Complacency is dangerous, as is euphoria. Other analysts we follow worry about a current lack of liquidity among corporates and retail investors (Cash or similar). But the fact there’s still widespread concerns is a good sign. What euphoria?
Wise investor Seth Klarman once said there’s always uncertainty around the corner so it’s best to balance caution with attack at all times. Somebody else once said that every now and again a player wins a match for you, but only the best teams win Championships. Rest assured we’re sticking to our team approach mixing the best defenders, midfielders and strikers.
I wish I knew all the answers even after all my Februaries. Given Valentine's Day is upon us maybe it makes sense to stay in love with your successful portfolio rather than be tempted to break up. We don’t pick funds for you to date short term. The best returns in life come from long term happy relationships. Sure there may be the odd rough spots, but this is no time to contemplate divorcing what’s worked so well this last eight years.
As for my Birthday bash in Tenerife, whether the weather’s warm or not I intend to enjoy it, even at my age. Salud.