Alan Steel Asset Management
+44 (0)1506 842 365
Wed, 18 Jan 2012
From 2011, we should recall the good things that most people overlooked, and put closure on the moments that terrified us.
Moreover we should learn once and for all the wise lines of Dire Straits' Mark Knopfler from his song Iron Hand:
"Same old fears and same old crimes, we haven't changed since ancient times…"
Finding the few white swans in the flock of black swans is a tough game. If it was easy it would have been called "fun" not "investing".
So here we are at the beginning of 2012.
Sure, it is obvious we are halfway through January already but it has been our experience that it takes that long for the Holiday Haze to wear off for most.
This week, however, things will get "serious" again and trends will change.
Last year at this time the world was awash in assumptions for a pretty good year ahead.
Earnings were predicted to be OK. No one was all that worried. The ground ahead looked pretty steady. Few saw anything else.
The SPY (the acronym for rating agency Standard & Poor's Depositary Receipts) closed week two of 2011 at $129.30.
And that fairly widely held view of the future in the crowd?
Well, it was wrong.
Fast Forward One Year....to Now
Here we are, the future is flock of black swans; fearful about the road ahead. And the perceived calm of the first of the year is teetering on what might happen in the next 15 minutes overseas at the ECB, in Europe or in a conference room in Greece.
The SPY closed the second week of 2012 at 128.84, a mere 46 cents away from last year at this very same time.
And that fairly widely held view of our future in the crowd now? Well, we feel like it will be wrong again.
But There's More....
Yes, in the midst of the real estate doldrums, the robo-signing (a practice - and scandal - in the foreclosure industry where bank employees sign off on thousands of documents and affidavits without verifying the information), the weight that still bears down on the banking system, the dire jobs outlook that cannot be shaken, the risk of domino effects of European defaults, the constant wave of more and more bad news, more and more hurdles to climb, more and more distance between "us" and a future that appears clear again to the masses…ultimately there is more than meets the eye.
Indeed, who would have guessed with all the turmoil of the last 365 days, the volatile nature in which the roller-coaster ride has unfolded, with all of us aboard, we would stand here today measuring that wide band of perception about our future on the basis of 46 cents?
What Could 46 Cents Tell Us…?
…less than zero, particularly for those who base their investment criteria on the next 8 ticks or 8 seconds or 8 days or 8 weeks.
Alas, for those who we must help coach along their own pathway, the only thing we know how to do is invest when things are valuable, when things are dark and misty, amongst the hurdles and flocks of black swans.
When the horizon clears we will not remember things the same way. The fear of the storms will pass just as the winds will and we will have moved on to the next monster, the next problem, the next scenario which elicits the quaint but ever so expensive, "Surely Mike, you do know it has never been this bad...."
And just as surely we will fail to recognize that earnings will be higher, prices will be higher, measures by which we track volatility will be higher and our ability to have news delivered to that space between our ears will be faster.
Rest assured technology will see to it that it's done and we will once again mistakenly assume that more news, more data and more streaming information means we need to do more, think faster, trade quicker.
In reality, if you know the right things, like how to spot the white swans, you need not know everything.
Oh yes....and the markets will be higher.
But What About Early 2000?
Way back when, in the darkness of our minds, it is easy to forget that we had a crowd in 2000 that loved stocks. Every piece of data available supports the way we felt then. Every cell of the crowds being was all about stocks.
Hell, market corrections were even hoped for, confidence was high and the future was bright. You could not pry stocks out of dead hands.
So what do we know now about what was happening back then? Let's take a snapshot back in time:
I could go on and on, touch on the capital inflows into markets then and capital outflows now, and talk about sectors loved then and sectors hated now.
And by the way, they are all about the same sectors and vice-versa.
Crazy, Don't You Think?
The lessons are tough but the evidence is clear. Darkness bears out values that often go overlooked until the future looks better; and by then they are gone.
Darkness and angst births the opportunity that one must embark upon to successfully build long-term wealth.
It is not about beating indices on a 12-month basis, it is about staying on course for a few decades or more. It is not about everything is perfect everyday, it is about everything is planned and patience is used at all times.
And it is not about doing things when they feel good.
It is about doing things that seem totally stupid, when you feel your worst as your mind ponders leaping off the ledge.
History is on our side and my job is to coach us over the finish line, keeping us on track when many would prefer to quit.
We are watching a window in time where values are significant. I would argue we are seeing a near replay of 1982.
Crazy, right; hunting white swans within the black flock?
It concerns me that we may only understand that later, years from now, as we ponder over a glass of fine wine about how fearful and uneasy we felt way back when....at the start of 2012.
Mike Williams is President of Genesis Asset Management in Manhattan, New York