Playing the long game
“The conventional view serves to protect us from the painful job of thinking”
John Kenneth Galbraith
“If stockmarkets were rational, I’d be waiting tables for a living”
If you read my Letters from Linlithgow you’ll recall that after March’s “earlier-than-normal Letter “Inconvenient Truths” I and my ‘current administration’ hot-tailed it to our favourite hotel, the Botanico in North Tenerife, for a welcome Brexit-free break, featuring lashings of Reserva Reds in a warmer clime.
What’s remarkable about the Botanico is that the owners opened it in 1974 with a vision to create a 5 star business the year before I started ASAM, and today, all these years later it’s still faultless. It qualified in 1998 as a member of “The Leading Hotels in the World” and it’s recognised as the best around. Hardly surprising then that when the Spanish Royal Family visit the Canaries it’s where they stay.
The interior, stunning grounds and spa are kept in tip-top condition. The staff, some who have been there for forty-odd years, are incredibly friendly. It was no surprise that when we were there last month, Conde Nast declared it the Best Hotel in Europe. It’s still owned by the Kiessling family who also own nearby Loro Parque, voted the best zoo in Europe, and Siam Park in the South, voted the best waterpark in the world.
When the hotel opened in ’74 it had the top end market to itself. The airport “Los Rodeos” was a 15 minute drive away. The south was a sparsely populated volcanic desert. So have the Kiesslings had an easy ride over the years since? Not a bit of it. Los Rodeos airport was already a problem thanks to local weather problems- high winds and fog. Then in March 1977 these problems, plus an unfortunate combination of circumstances, led to the world’s worst ever air disaster when two Jumbo jets collided in fog and 583 people died.
Soon afterwards the new International airport opened way down south, helping to trigger a vast investment in resorts and top hotels. Attracted also by the sunnier and hotter climate, over the last 40 years, no fewer than twenty seven 5 star hotels have been built in the south. Add to that, recessions in northern Europe since the 1980s and the Great Financial Crisis, which hit tourism hard in the Canaries, and it would have been easy for the Kiesslings to cut costs and lower their standards. They didn’t. They kept their focus and their nerve.
While there, as promised in my March Letter, I got stuck into some nice Reds. Reading the blurb on the back of a Penedes “Coronas” from the Catalonian Torres family, I discovered that they were also focussed, and fighting competition for almost 150 years since Jaime Torres and his brother Miguel founded Bodega Torres in 1870.
Today the fifth generation of the family control one of the world’s biggest and best wineries, exporting to over 140 countries and with wineries in six separate Spanish wine regions as well as in Chile and the US. To reach this position, each generation has coped with uncertainties, economic crises, wars, paradigm shifts in society, climate change and various misfortunes that would have floored lesser mortals.
In 1939 for example during the Spanish Civil War their winery in Penedes was bombed and destroyed. Miguel Torres Carbo rebuilt the winery and through determination and innovation created timeless classic wines. In 1966 the next Miguel had a vision of introducing Cabernet Sauvignon grapes, and in 1979 the wine produced, Mas La Plana, won first prize at the Paris Wine Olympics (by a good nose no doubt). It’s gone on to win more international awards than any other Spanish wine. (And have a special place in my taste buds). Do try it!
What applies to building a reputation for excellence over the long haul, through thick and thin, in hotels, zoos, waterparks or wines is the same formula for building and protecting wealth. Philosopher Naval Ravikant said “All the best returns in life, whether in wealth, relationships or knowledge come from compound interest.” Warren Buffett would probably add “and never giving up on your goals, curiosity and patience.”
I came across an article on t’internet from 18 months ago which reckoned that Warren Buffett’s remarkable fortune isn’t simply down to him being a great investor, but also as a result of being so since he was a child. At the time in the Autumn of 2017 it was calculated that $80.7 billion of his $81 billion net worth was accumulated AFTER his Fiftieth Birthday. And $78b of the $81b came after he was 65. Hope for us all yet then.
Here’s another fascinating fact … Since 1916 the Dow Jones in the US has made new All-Time Highs less than 5% of all days, but over that time, it’s up 25,568%. Remarkably, it spent over 95% of all that time “underwater” (according to headline writers and pessimists). Conclusion? The less time you listen to the “News” the better.
So I’d imagine the Kiesslings in Tenerife, the Torres family in Penedes and the Warren Buffetts of the world have managed to wean themselves off any temptation to constantly react to short term “crises” that we’re told about almost daily, to focus instead on opportunities and positives. Hard to do, but clearly worthwhile.
So they’d simply ignore the latest much publicised predictions of economic and stockmarket gloom from the “so-called bond king” featured in headlines last month “Jeffrey Gundlach Says The Stockmarket Was and Still Is In A Bear Market.” Gundlach was described as a “respected prognosticator” (Aye right as they say in these parts). Here’s what he said in 2011, “Still A bear market rally.” In 2012? “A financial catastrophe is coming.” 2013? “Don’t buy equities,” 2014 and 2017? “Don’t buy stocks.” In 2016 he went further “The US stockmarket is dead money” he said.
No idea what happened to him in 2015. Maybe he became temporarily optimistic and as a consequence wasn’t worth quoting. Albert Edwards, whom I’ve mentioned before, isn’t optimistic ever. By his own admission he’s been bearish (industry term for downright miserable) on stockmarkets for 23 years now. But he found a graph showing to his relief that over that period Government Bonds globally had kept pace with equities without their volatility. So apparently he’s been simultaneously wrong and right. Work that out.
Except that independent analysts couldn’t replicate his figures on global bond returns, and to make matters worse for Albert, 8 years ago in 2011 he predicted imminent hyperinflation (which hasn’t happened) and said “On a 10 year view I think 10 year Government Bonds are a horrible investment.” Double oops.
Recently Ned Davis Research produced a report on “The Wisdom and Folly of Crowds” which contained these opening words - “Humans are consistent creatures in two areas that govern financial decisions: our root programming for fear (avoiding loss) and greed (acquiring resources), plus our common quirks in mental perception.” Which is another way of saying that investors keep getting things wrong, thanks to emotions of fear and greed being driven by the wrong outside influences, and at the wrong times.
On t’internet I found a spoof piece showing a group of journalists round a table with the headline “CNN Holds Morning Meeting to Decide What Viewers Should Panic About For the Rest of the Day.” For CNN read BBC, which stands these days for British Brainwashing Corporation. CNN, my American friends tell me stands for Constantly Negative News. For the best part of 5 months now we are bombarded by scary headlines about investors rushing to safety, going to Cash, and piling their savings “offshore” because of “Brexit,” completely oblivious to the juicy costs charged initially and annually.
The lessons I’ve learned over the last 50 years, added to the examples above, say it all. Select quality then leave it quietly to grow. And talking about long term and quality, I lost my great friend of 65 years, Alex in Australia a few days ago. Suddenly. Just like that. So here’s some non-financial advice. Please keep things in perspective. Go see someone close you haven’t seen for a while. Have fun. And ignore the headlines.
Last but not least, after over two years of hard work and painstaking analysis, with the unstinting assistance of Karen in Compliance, and our secret external lieutenants, John, Ed and Elaine from our web designers Gecko our new website at Alan Steel Asset Management went live on t’internet this week. Please do visit it and please give do me your feedback, warts and all. And thank you for reading these letters and for your feedback. I really appreciate it.