Keep calm & listen to Charlie
As each month passes it gets harder to come up with a message on LFL that’s different from “please ignore the widely acclaimed perennial pessimists quoted year after year.” What really grates with me though is that they’re now referred to as experts who predicted this or that once in a blue moon and awarded “guru” status for evermore despite being wrong ever since.
Those of you who now avoid Bad News At Ten will be delighted to learn that in the last
6 months you’ve missed more Middle East shenanigans; a “likely” nuclear war between the US and somewhere with the GDP of Cowdenbeath; more boring Brexit beefs; hikes of a “smidgeon” in UK interest rates; inflation fears because some stuff is a fiftieth dearer than last year; a floating £ in danger of drowning; Trump’s tariff tantrums and reports that Turkey Lurkey endangers World growth. They said that 8 years ago about Greece. Then Italy, not to mention China.
Actually despite the constant gloom over the last 6 months, even much maligned Cautious/Value guys like Sebastian Lyon and Neil Woodford, whose investment process has had a rough time for a couple of years, have produced positive returns while weak hands are left to chase last years’ winners.
Meanwhile, media money experts claim that we’re not saving enough. Especially over in the US where, oddly enough, although stats show that most folks over there have had no income increases since Spurs last won a trophy, spending in restaurants has risen by over 25% in the last 12 months. Work that one out!
But now a wee story to underline how we’re increasingly being advised by writers who populate money pages and t’internet these days, despite having little or no savings, no qualifications and without legal accountability when wrong, all thanks to an ineffective 1986 Financial Services Act.
So there’s this chap being interviewed by an “expert” commentator and asked if he has any spending that could be cut out so he can save instead. “Well, the missus and I between us knock back a bottle of Shiraz or Rioja a day on average” Cost? “Maybe £15” he admits. (Don’t jump to any instant conclusions. This is merely one example of applied mathematics)
“What?” exclaims the twice-daily Starbucks-junkie, rather shocked at the answer. “So that means every month you spend an average of £450 on alcohol?” …. “Bottled sunshine” the chap replies, “part of our Vitamin C diet.” Undaunted the “money guru” continues her grilling….“and how long have you been doing this?” “Erm, fifteen years I suppose” replies our self-taught wine connoisseur.
“Fifteen years? So that’s £450 a month, on average, year after year for fifteen years. £81,000 down the drain ignoring inflation. Do you realise that instead of wasting all that money, if you’d invested in an investment ISA, in quality Equity Income funds returning, say, 10% pa incl reinvested dividends, you’d have over £180,000 tax free available today? Enough to buy a bright red Ferrari 488 GTB”
“Don’t you drink then?” asked the chap. “No” replied the guru smugly. “Never have done. A (tee)total waste of money”…….. “I see” said the chap, “So where’s your Ferrari then?”
Fortunately like me, the vast bulk of our clients stopped long ago this kneejerk reaction to everything they read or hear from media “gurus” with their dismal predictions and sensationalist headlines. Those who still do however end up with constant poor returns, thanks to chopping and changing sectors or funds , chasing the latest hot fad as well as panicking every now and then into “safety.”
And although pessimists now try to convince us that “excess charges” are the cause of any investment under-performance, long term studies like the Dalbar Report make it crystal clear that the principal reason is behavioural. Yes, it’s that wee interfering Amygdala again. Nicknamed “the panic button in the brain.” It encourages us to run screaming with the herd, time after time. Designed for life in dangerous Savannah lands, it doesn’t cope with TV “Breaking News” horrors.
But no doubt pessimists spotted the latest warning from US based PhD “genius” John Hussman, whom we’re told predicted the 2000 and 2008 Market collapses. In July he said yet again the Dow Jones Index would fall over 60%. Last October he said “The next market collapse will be worse than 2008’s.” But he’s been preaching doom and gloom since Dec 2009, nine months after the start of the current secular bull market.
Wrong for over nine years. Jings. So how has his “Strategic Growth Fund” done over the ten years to 2016? Erm, down 41% compared to up 96% in the US market that he said was a mug’s game. Mind you he’s in good company. John Mauldin who gets paid “upwards of $200,000 by hedge funds for a consultation” has been saying much the same since March 2009. Apparently any increase from then was “just another sucker’s rally”. Mauldin by the way writes books, has thousands of followers and describes himself as an optimist.
Nouriel Roubini you may not have heard of either. You may recognise him by his “celebrity” nickname, Dr Doom. He’s another cheery expert who is also said to have predicted the 2008 financial crisis but has clearly had a bad run of fortune cookies since. Here’s what he wrote in March 2009, the day the current secular bull market started. “The recession train left the station over a year ago and it’s going to continue”
Charlie Munger, the 94 year old sidekick of Warren Buffett for forty years, in his address to those graduating from London’s University College asked “How do you live a life that really works?” His message was “Deliver to the world what you would buy if you were on the other end” and continued, “people with this ethos win in life and they don’t win just money, not just honours, they win the respect and the deserved trust of people they deal with.” He’s singing our song. When giving advice I always would think “what’s the best advice to give assuming it was me sitting over there?”
What can we also learn about long term success from three other long term investors, Buffett himself, Morgan Housel and Sir John Templeton? They’d say that success is down to three factors. Be constantly curious, be comfortable in thinking differently from the consensus, and never waver from a process that stands the test of time. Charlie Munger said he didn’t want to get rich for the Ferraris but for the independence it brings you. Finally his words of wisdom, which may not hit the headlines but which hits the nail on the head.
“The big money is not in the buying and selling but in the waiting.”
I reckon this is such a time not to waver or to chase yesterday’s winners. The Ferrari can wait.