Let it snow, let it snow, let it snow
LET IT SNOW, LET IT SNOW, LET IT SNOW
As we all have other things on our minds at this time of year I intend to make this month's update brief.
As we complete the fourth week of Arctic conditions, I note that the term "global warming" has disappeared from the BBC's vocabulary (as has the film of the polar bear on the iceberg) and has been replaced with "climate change". In fact more than one expert has been on the box suggesting that we better get used to these conditions as we are about to enter a new Ice Age. I have a better idea. Why don't we just call it weather and accept that sometimes it is good but more often it is not.
It is a classic example of how our minds work that the weather we experience most recently must somehow be an indicator of what it will be in the future. We tend to forget what has happened in the past and fixate on what is current, and believe that this is the best indicator of the future. This is one of the reasons that councils decided over the last ten years to reduce the number of gritters and ploughs as the winters had been quite mild which reinforced the prediction of global warming.
It is exactly the same when it comes to investing, and that is why so many of the herd get it wrong. In the last ten years we have seen the technology, property and currently fixed interest bubbles. Each one seemed to be a guaranteed way to prosperity, and grew on the back of short term growth which seemed to confirm the belief that this was the way to riches. However, just as Scotland's transport minister and the board of BAA have found out, past performance is certainly no guarantee of future returns.
Without sounding like a broken record the key to predicting the future is to ignore the immediate past and whatever the herd are doing and instead take a common sense view. At the current time we believe that equities represent the best long term investment to give an excellent real return, particularly in an inflationary environment, and that UK Government Gilts, with the probable exception of the index linked variety, are likely to be very poor performers in the coming couple of years. Residential property is probably going to continue to fall in value in both real and actual terms, and holding cash is a guaranteed way to lose money taking into account inflation.
We are starting to see that more people are coming around to the equity argument and Goldman Sachs are predicting a 22% rise in the US market in 2011. However the good news is the majority are still negative on equity markets, and long may that continue.
PS In case you are interested we received an early Christmas present when it was announced that ASAM has once again been shortlisted for the Investment Adviser of the Year award. The winners are revealed at the end of March and we will keep you posted.