"Let it snow, let it snow, let it snow"
“Oh the ‘market’ today is frightful, and the economy’s hardly delightful
But to pessimists just say ‘No’……
Let it snow, let it snow, let it snow”
(with apologies to Sammy Cahn)
“I find more and more that it is well to be on the side
of the minority, since it is always the more intelligent”
(Johann Wolfgang von Goethe, philosopher 1749 to 1832)
At a gathering of investment managers and analysts in London last week, for reasons best known to Vincent Deluard of the organisers, US based analysts INTL FCStone, I was asked along to share the platform with him and Ned Davis Research’s Tim Hayes before “warming up” my old chum billionaire investor Jim Mellon who presented on longevity and its investment opportunities for patient investors.
As the focus was on what’s next for investors given current volatility, I thought that reviewing what had happened since I was born would add a fresh perspective given that most of those present were much younger and who probably think “things” have never been this bad (given the current popularity of pessimism). So, in your pre-Christmas Letter I thought you might appreciate knowing what I said.
Unlike Keith Richards of “The Stones” I wasn’t born in a “crossfire hurricane” but I was born during the worst winter to hit Scotland since 1683/4. Now I don’t remember it but my parents ensured I knew all about it. Seems I was lucky as a teenager always complaining about the “cold” when trying to sleep, pinned to the bed by a mountain of blankets, in a bedroom with ice inside the window. And that was in summer.
“My arrival” took place in Edinburgh in the very early morning of 22nd Feb 1947. I was driven home behind a snow plough to Bo’ness days later. Thanks to blizzards that month in 26 out of 28 days and to temperatures of up to (or rather, down to) -20C, by March, snowdrifts were 23ft deep in places. Across the UK, 300 roads and most railway tracks were unusable, 750,000 coal-filled railway wagons were trapped, the sea froze up to a mile offshore, and UK industry was cut off from energy supplies.
Food rationing hit a level even lower than during World War 2. Television programmes were suspended, radio broadcasts were slashed, and newspapers were cut down to as little as one sheet. At least there was some good news. In such bitterly cold weather, brass monkeys were spotted desperately searching for welders, and Edinburgh lawyers had their hands deep in their own pockets for a change.
My dad, a bricklayer, had no work for 16 weeks. There were no unemployment benefits. Not enough coal to keep the home fires burning, no double glazing, no central heating and a plummeting economy. Jings! Exchange Control was formalised to stop money leaving the UK and to “save” the Pound, which was nevertheless devalued against the US Dollar from $4.03 to $2.80. A deep recession followed and my parents never recovered their joie de vivre. Probably as a consequence I remained an only child.
The 1950s weren’t any better. The UK economy staggered on. We emigrated 3 miles to Linlithgow as part of a cultural enhancement programme and to qualify for a house at last, but suffered from more recessions in ’56 and ’58. Still no modern comforts like warm rooms and double glazing. Mind you we were better than my Granny McKay who had the dubious pleasure of a candle-lit outside toilet shared with other families.
Next up “the Swinging Sixties.” The decade kicked off nicely with a recession. If that wasn’t bad enough, the USSR and the US fell out big style and in October ’62 I went to bed, like Gladys Knight in 1980, not knowing if I’d make it through the night. History tells us we were within an hour of nuclear destruction. Cold War? Tell me about it. From Dec ’62 to Feb ’63 the UK bit below Scotland... (England it’s called), suffered the coldest spell in 280 years. The average UK day-time temperature in February ’63 was -2.1C. Brrrr.
March saw our family finances stretch to a telly, first in the street. A black ‘n white Bush TV, 14 inch screen, with all of one Channel which transmitted programmes for about 6 hours a day, including one short News broadcast which never mentioned stockmarkets. Heaven! And as programmes finished mid-evening, it was the following day when we learned to our horror that Pres Kennedy had been assassinated the day before in late November. Better news in ’65. We got a telephone and a fridge installed. Just in time.
Two years later there was another Gulf War, more devaluation of the Pound by 14% and things were so bad that UK Exchange Controls tightened even further. You weren’t allowed to take more than £65 overseas. Foreign investments? Forget it. Unless you were as clever as singer Cilla Black who hid £1,000 in a hollowed-out loaf supplied by her baker husband to complete a Spanish Property purchase. Crumbs. It may have qualified as a half-baked idea, but it worked. I bet they toasted their success in the sun.
Then things got worse. In 1968 along came the second longest UK recession ever. Undeterred I signed up as a would-be actuary in the Summer of ’69, immortalised by Bryan Adams in his hit song. My joy didn’t last long. In 1971 Rolls Royce went bust. Fed up trying to make actuaries laugh I moved on to another Ins Co on my way to becoming an IFA in January ’73. Great timing. Nine months later, the Oil price soared, then doubled in 12 months. The UK stockmarket went in the opposite direction. It fell 70% by January 1975.
And what did I do in the economic depths? I resigned to start ASAM. Masochist or what? UK inflation had leapt from 1970 into double figures where it would stay for the best part of 20 years or more, reaching 26% between ’75 and ’76! Income taxes started at 35% and peaked at 98%. Taxes on death weighed-in up to 75%. Interest rates were all over the place. In ’79 another energy crisis came along. Stagflation was born.
Into the Eighties thank goodness. Er, hold on. 1981 welcomed yet another recession. Stockmarkets struggled since 1965. Is it any wonder? The Dow Jones hit 1000 in ’65, and managed to crawl back up to 1000 in 1982. But just when it looked like it could be an easy ride, Egyptian Pres Sadat was assassinated. “Experts” predicted that Communists would control Middle East oil production and the “West” would “suffer.”
1984 was a miserable stockmarket year (maybe George Orwell would be right). Then in October 1987 the biggest ever one-day stockmarket fall took place. 1989 wasn’t too clever either, to be followed by another deep recession in ‘90/’91. Oh…did I forget to mention the 1989 collapse of the USSR? “It’s just one thing after another,” was my Granny McKay’s analysis. And so it continued through the 1990s and into the millennium. One crisis after another… I often say I’ve survived at least 5 stockmarket crashes, but when I look back in such detail it’s a damn miracle “I’m still standing” (Bernie Taupin and Elton John).
So since I was born there’s been no fewer than 77 times when “markets” have dropped between 5% and 10%, 27 plummets of between 10% and 20%, and at least 3 crashes of 50% or more. (Source: Jim O’Shaughnessy). And that’s not counting the hundreds of occasions since 1947 when markets fell between 1% and 5%. So bear that in mind when you react negatively to announcements of a 2% or 3% fall as we’ve seen lately.
Was it a good idea to avoid investing in stockmarket assets while this chaos was going on? In 1947 the Dow Jones stood at 176.39. In 1965 it hit 1000. It didn’t hold above that level ‘til Dec 1982. In March 2000 it got to 10,000, didn’t hit that mark again ‘til Nov 2009 after the traumas of the millennium. Today after another “collapse” of 3%, it stands at 25,000. That 142 fold increase ignores reinvested dividends.
Now let’s think of Warren Buffett’s favourite investor Rip Van Winkle, who invested and then fell fast asleep. Legendary investor Sir John Templeton launched his Growth fund in 1954. 40 years later despite the chaos and crises, it compounded at 17% a year doubling Rip’s investment every 4 and a bit years. I bet he was surprised when he woke up. And if Rip Junior, before nodding off, stuck his inheritance into the care of much maligned Woodford and Barnett at Invesco’s High Income fund twenty years ago I bet he’d be stunned after waking up today and watching the News, to find his investment (after charges) up 458%, which is more than double the FT All-Share total return.
And you know what they say about one door always opening after another one closes. So enjoy the advent calendar, go turn off the “news” and do have a Merry Christmas.