Thoughts from the Sunny South
By Alan Steel
For publication in The Scotsman
Saturday 15 September 2012
It was suggested I write this piece (on holiday in Nova Scotia) as "From the Frozen North". That's due to a commonly held belief that Nova Scotia lies somewhere near the Arctic Circle and I'd be spending my time avoiding icebergs.
Funny how folks can get the wrong impression. As I often say - what do you believe to be true that's actually false? Well it's sunny here today, 75 Fahrenheit, because Halifax NS lies on the same line of latitude as Toulouse would you believe, and New York is a one and a half hour's flight further South.
We were here exactly 4 years ago. Remember what happened on the 15th of September 2008? The World came to an end, again! Lehman Brothers, the 4th biggest US Investment Bank, went belly up thanks to the US Government refusing to bail it out, despite employing 25,000 people worldwide, without any thought as to the effect on investor confidence and stockmarkets.
The world held its breath. Markets really did plummet, and my holiday became a nightmare. Days earlier I had attended a meeting of analysts and fund managers in New York, where a pleasant session was spoiled by Joe Kalish of Ned Davis Research, who was accompanied by black clouds as he entered the room. Joe's vision of economic prospects didn't go down well. His number crunching and deep studies of economic history saw a subprime disaster of epic proportions looming large and thought it was imminent. We didn't listen to him. But we do now.
Last week I was back in New York, just round the corner from Times Square, not far from where Joe delivered his gloomy prediction. How are New Yorkers faring now amongst the so called Double Dip Recession? Rather well actually. The place is jumping, thousands of folks filling restaurants and their shopping bags - think Edinburgh's High Street during the Festival but even busier. The people I spoke to are very concerned - about Greece, Spain and other countries in Euroland they can't pinpoint on a map.
But Danny, a wise old barman in an Irish bar round the corner from our Hotel, said that in his experience which goes back beyond mine, the time for sharp exits are when nobody's worried about anything, like back in the glory days of Summer 2008 and before that the heady days of the Dotcom boom .
Four years ago the FT100 Index, just before the Lehman shock, was 5000 ish, the Dow Jones 11000, the NASDAQ 1600. Experts said the markets would have to be 60% lower before it would be safe to invest again. Ooops - never happened.
As I type this in sunny Nova Scotia, the FT100 nudges 5800, the Dow 12000, and the NASDAQ has battered its way through crisis after crisis to 2780, up 70% since. Yes markets kept falling to finally bottom in March 2009, but those who held their nerve - and that was not easy I know - have been rewarded. Do remember Indices do not allow for reinvested dividends, and they have been hitting record levels as companies all over the world, including storm lashed Europe, share their rising profits and swollen Cash mountains with investors.
One huge difference for me over the four years is, thanks to Apple and my fascination for iTunes (which motivated me to finally embrace the digital age), the iPad gives me access to information and research you could not have imagined in your wildest dreams. But today our world of never ending technological progress - High Tech High Touch - is what gives me hope for the future for patient investors willing to believe optimists will continue to pocket the rewards. Joe Kalish incidentally is a happier bunny judging by his weekly updates and his cheery demeanour when I last saw him a few months ago.
And what's the current view from his bosses at US based Ned Davis Research? According to their analysis of 44 World stockmarkets, no fewer than 42 represent real value, with the best value lying in Europe, 40% below their long running averages , with Greece down almost 90% ( for the brave ) and more than a few Asian countries worth a punt.
And from the real Frozen North comes support for their call on Asia in the shape of ace fund manager Hugh Young of Aberdeen Asset Management who has published his 10 Golden Rules for Investment Returns. Two stand out for me and I share them with you .....
The worst reason to buy is because others are. This means you are aligning your portfolio to mimic an Index. Successful investing requires you to think differently. At times this is very uncomfortable but that's a sign you are on the right track.
And the so called Efficient Market Hypotheses is nonsense. Markets are driven by humans who are typically irrational, thus markets are too. When investors panic, do not join the stampede. Think of a 20% fall in share prices as you would a sale in a Department Store - an opportunity to buy.
Pity our Financial Regulators don't listen to folks like Joe Kalish or Hugh Young but prefer to follow theorists and outdated philosophies. They continue to see risk as deviations from a UK Index, so the further you follow where value lies the more risky they see it. And what have they learned from their mistakes over the last 4 years, never mind the shambles of Equitable Life over 12 years ago? Answers on a microdot please.
Their latest master plan to try to right the wrongs of Investor advice is to use a sledgehammer to crack a peanut. RDR may not be a term you're yet familiar with, but it involves massive cost to the Investment industry and the potential for devastating the distribution of experienced independent advice in the UK. Exams have to be passed which only measure how well you can pass them, not experience, integrity and the actual advice you receive which investors presumably would prefer. And buyer beware. If their obsession with transparency means to you advice and products will be cheaper, forget it.
Already it's obvious that those who delight in overcharging their customers and doing as little as possible in return will not disappear. They are already rubbing their hands with glee as they find new excuses to raise their profits. So if I were you I'd be very careful right now, not from plummeting stockmarkets, but from those who want more than their fair share of your life savings.
An edited version of this article appeared in The Scotsman on Saturday 15 August