The Long and Short of It
By Alan Steel
An edited version of this article appeared in The Scotsman on Saturday 10 November
Well that's that. All the rhetoric about who'd be the next US President is over. Turns out the polls again were miles out, and it didn't come down to 4 old ladies in Ohio after all. Obama walked it as was predicted over the last year by Independent research who've studied over one hundred years of election history. Still it filled TV news channels for a while keeping pessimists optimistic about doomsday scenarios. So what's new to worry about? - The Fiscal Cliff anyone?
Last Thursday I was speaking at a Rotary Dinner in Fife which to attract a decent audience was entitled "What Investors Can Learn From Barcelona FC," involving a premise if you put together a team of fund managers amongst the best in their field --- defence - cautious, midfield-balanced, and attack - growth, and at the same price as average alternatives (say Barnsley), and you can bring in stars without transfer fees, wouldn't that be a good idea? And that's, thanks to the impact of new technology, what investors can do to build winning Pension plans, and other investments these days.
Turns out timing could have been better, given less than 7 days later, Celtic managed to win in a Herculean effort against the mighty Catalans. Still doesn't change the big picture though, that the best team wins in the long run. And the occasional loss can be the very time to obtain better odds on future victories. Knowing the bulk of the Rotarians were gloomy about prospects for the economy and stockmarkets, I started the talk by reading from the first paragraph of a speech I'd delivered at a seminar for Lawyers and Accountants, which went as follows:-
"The concern which has been shown recently over the state of Markets is understandable. For those who have come into Equity Investment over the last few years it has been quite frightening. A commonly expressed fear is that this is Armageddon-this has never happened before! There is general concern too about the high oil price, and an air of barely controlled panic has begun to show through, so the purpose of the following notes is merely to put some of the current fears into perspective."
So when do you think these words were written? Last year? 2008? That's what the Fifers thought. In fact the speech dated from January 1991! One of these earlier times when we worried about Recessions and Stockmarket falls that left us with little hope allegedly. All caused by a hike in Oil prices and a Middle East conflict. Just like the aftermath of an earlier Middle East war in 1973 that saw Oil prices rise 67% overnight on 16 October - Wait for it - from $3 a barrel to $5! The ensuing panic saw the FT Index fall 70% to a low late in 1974.
To illustrate the short term damage to investment values caused by such panics I compared the movement in values of a long running fund M&G Recovery, launched in 1969, and currently managed by Tom Dobell, a member of my "Barcelona" squad. £1,000 in the fund in 1972 fell to £540 by late 1974. Left invested it grew to £2,000 in 1978, and by January 1991 had grown to £22,229. What is it today? Check this - it would be worth over £157,000. For those brave enough to buy after the falls induced by panic in late 1974, they are sitting on a fund worth over £292,000.
So instead of being driven by emotional knee jerks from one perceived problem to another, why not keep your eyes fixed on the likely investment horizon?
Over in the US squabbling politicians will patch up their differences over funding. So look instead to the indisputable facts that the country's sitting on Oil and Gas Resources that will change it and the rest of the world for years to come. A US economic boom is the next big thing, with profits and benefits even greater than those in the 1900s and 1930s. Don't miss it.
Written for publication in the Scotsman
Saturday 10 November 2012