Nostalgia Rules Ok
“My Grannie McKay had a hard life. She brought up seven children single-handedly
in two rooms, a tiny scullery and an outside toilet shared by another family. I asked
her back in 1969 what kept her going. ‘The Bible; time after time it says… ‘and it came to pass.’ But never once did it say… ‘and it came to stay’ ”
“How much have you made by listening to all the ‘Apocalypse Now’ predictions?”
You may remember from my August letter that this month I was attending a 50th Anniversary Reunion bash with some fellow Geographers with whom I graduated back in 1969. Well it happened last week. Some folks I hadn’t seen since our 25th Anniversary bash. Others I hadn’t seen since graduation day. Most had become Geography teachers and lecturers. Few of us had gone into business life. Two had started their own businesses. Despite decades of bad news, both of us are still going strong.
It was fascinating catching up with old pals, especially the ladies, who seemed to have “survived” better. And they seemed more interested in investment than the boys, judging by the questions I was asked. The boys talked golf and asked about our sponsorship of Stephen Gallacher. The girls asked about Brexit, Trump and when the next financial Armageddon was due. A couple of them had substantial funds lying in bank deposits earning the square root of sod-all. And their money had been there for 3 to 5 years. They’d kept it there because they kept hearing that a crash was just round the corner.
At lunch, a rather long speech by a lecturer from our undergraduate days, Dr Kirby, had us reminiscing about life (and prices, as you do it seems, when you get older) in ’69. I explained one simple way of comparing costs of living then and now. On Wednesday afternoons we were allowed off lectures to play sports. Believe it or not I was an athlete back then, a participant in the Scottish under-18 High Jump Finals. Entered the competition when the bar was at 6ft 2ins and I couldn’t get a drink. Hehe.
But I digress. On Wednesdays when the weather was foul (quite a regular occurrence in the late 1960s’ Scottish winters, which was no surprise given that the consensus of climatologists at the time were predicting an oncoming Ice Age), us athletes would pop into Stewart’s Bar on Drummond Street for “their healthy lunch special”-- a pint of light beer and two hot pies. All for two shillings and sixpence! True.
For the non-mathematicians among you, that’s all of twelve and a half pence. Or you could upgrade to their a la carte menu, swap the light beer for McEwan’s Export and a splash of gravy on each pie for one and sixpence more. Just 20p, but a bit too steep for us poor students.
Despite being told by “experts” that inflation is benign nowadays, it’s alarming to note that to enjoy a pint and two pies today, with the gravy, it would set you back at least £7, which is about 40 times more. In only fifty years. So if I’d wanted to pay the same in real terms for my 1969 “healthy” lunch I’d have needed to have grown my returns on savings by at least 7% a year after tax. This led me to check other examples of cost of living changes over the last fifty years.
The average male full-time wage in ’69 was £1560. Had it been inflation adjusted (RPI), it would be £24,050 now. Today it’s actually £31,834. The average house price was £4312. Had it increased by inflation it would be £71,333. Sadly for those seeking to get on the housing ladder it’s £215,910 now. But some stuff has become cheaper. Fancy a two week holiday in August in Benidorm? Me neither! But in ’69 it set you back £78. Inflation adjusted it should cost you £1290 now but it’s a bargain at £950.
Beneficiaries of the really positive price changes are those who bought a 19 inch colour telly and whose idea of a fun night-in is watching 24 hour bad news, drinking coffee and eating chicken sandwiches. That telly in ’69 cost £240, it should’ve cost you an inflation-adjusted £3970 but weighs in at a mere £99. The chicken at 41p should cost £6.80 but is a snip at £2.80, and a loaf has gone from 8p, not to £1.32 but to only 59p. Coffee’s much cheaper too in real terms believe it or not.
Dr Kirby reminded us though that it wasn’t all about cheap pints, pies and sweetness and light. There were lots of deep tensions he said. Lots to worry about outside our protected academic cloisters….. Middle East Wars, the Vietnam War, not to mention the Cold War. But when you’re young you ignore all that and just carry on regardless. You graduate, choose careers, partners, start families, take out mortgages, pay taxes and get on with life. And before you know it you’re at a 50th anniversary reunion.
When you look back over the years, in every decade since, there have always been tensions which optimists ignore while pessimists fret. Fret is one letter different from fear. And fear is destructive to wealth building. A couple of quotes spring to mind which sums it all up. Confucius said “Life is really simple but we insist on making it complicated.” Tiho Brkan added “So is investing. Mind you, simple doesn’t mean easy.”
Thanks to irrational fears, there’s more money flowing into cash (or money) funds and ISAs rather than stock market funds. And there’s much more in total lying in cash ISAs then in “stock market” equivalents despite the fact that they’ve had negative returns after inflation for over ten years. If I’d told you ten years ago that the following would be the case in 10 years’ time you’d have locked me up and thrown away the key. (A Daily Telegraph reader suggested as much, in a nasty email after my article in late February 2009 advising readers to buy stock market funds. I hope he’s still in cash!)
Consider this list courtesy of “A Wealth of Commonsense”…..
1 US unemployment will be 3.7% (down from 10%)
2 Inflation will be virtually non-existent (despite unprecedented Quantitative Easing)
3 Government Bonds will be at record lows (despite record deficits)
4 The Oil Price will have halved (despite constant predictions of shortages)
5 There will be trillions of dollars of negative yielding bonds around the world
6 We’ll still in the longest-running economic expansion in modern history
7 And (despite all this and Trump) had you invested in US equities you’ll be up fourfold.
And yet still too many fret over the constant bad news headlines. Back to Tiho Brkan again who said only last week “It seems like every week or month there’s a new reason to sell your equities. I can’t even keep up. Inverse yield curves, falling copper prices, Euro bank problems, Argentina, too strong US Dollar, Growth versus value etc etc.” A pessimist called Sven Henrich was on telly last week predicting “a death spiral in the US stockmarket when the recession comes.” Seems he’s only repeated this 60 times in 8 years.
I bumped into old friends recently. They encashed their entire portfolio in November 2015 earning negative returns ever since. And that ignores inflation costs. I can’t remember what spooked them and neither can they. Might have been some headline about Oil price rises bringing down the world economy? Who knows? But the FTSE 100 was at 6200 at the time. And they did say they’d reinvest when “it felt better.” “When would that be?” I asked at the time…”when the market’s higher or lower?” “Higher” they replied. Work that one out. One fear quickly replaced by another year after year.
We calculate they’ve missed out on a 36% net gain since November 2015. And that’s a lot to miss out on with their former portfolio. You could buy a helluva lot of “a la carte” pints and pies with that. But is there a sensible alternative to sitting in cash for all the worried ladies in my old Geography class and others, who like these old clients, worry themselves needlessly over the latest scare story the media use to sell adverts and clickbaits? So let me tell you about our number one goalkeeper fund…
Launched in early 2001, and just think of all “the ends of the world” we’ve had since, this Steady Eddie has grown by 256% compared to the FTSE100 total return’s 147%. Its’ volatility is under 40% of the Index, the maximum drawdown over the 18 years is only a fifth of that of the Index, and at a steady 7%+ over the period it lets us oldies sleep at night. And it has kept up with the rising price of pints and pies. Perfect. Oh, almost forgot, Stewart’s Bar is now called The Brass Monkey. A sign of that oncoming Ice Age at last?
This letter is the personal view of Alan Steel. Please check the appropriateness to your individual position with your adviser before taking or refraining from any action.