The long and winding road
“You have to be willing to look like an idiot in the short run to
outperform in the long run. What ends as being better
usually starts off as being different”
Shane Parrish, philosopher
“No matter the setbacks you endure, hold firm to your core values.
Exceptional results are seeded in disappointment”
Steve Jobs, entrepreneur
“There’s always more to everything than first meets the eye”
Nanny McKay, wise granny
In the good old days when I was a wee boy I was taught “how things were done around here”. Values were laid down and firmly cemented in by my mum, aunties and grannies. Dad wasn’t around. Too busy working. My grannies were special though. They’d both seen hard times, were founts of wisdom and were revered. You wouldn’t dare answer back, far less shove them off a bus.
The values driven into me have stuck with me all these years. Treat others as you would want to be treated. Be kind. Stand by your friends and your principles. Always try to do the right thing even when no one is watching. Be curious. Stay open-minded. And when things go wrong, don’t feel sorry for yourself. Never give up. “It’s better to light a candle than curse the darkness.”
When I was finishing my degree over 50 years ago I had no idea what to do next. But when I heard that actuaries made a lot of money sitting on their backside doing sums and speaking Algebra it seemed a good idea. To put things into perspective, when I started in Actuarial in 1969, the Dead Sea was just seriously ill and Long John Silver had two legs and an egg on his shoulder. And when folks turned 65 they were given a watch while their blood groups were discontinued.
The financial world had strange words and expressions back then. Who remembers triennial valuations, With Profit reversionary or terminal bonuses, “guaranteed returns”, double-digit deposit rates, annuity and inflation rates? I wrote last week that these rates were so far into double-digits they suffered from vertigo. Within 3 years of me starting as an IFA in 1973 inflation peaked at 26% pa. Even worse was the UK stockmarket crash only months after I started. Down by over 70%. Yikes. Investors were so traumatised they missed the dramatic recovery 15 months later.
Inflation went on to destroy the savings of those relying on “safe” deposits, and dealt “a death by a 1000 cuts” to long term With Profit Endowment policies. Remember them? Despite the ineffectiveness of deposit interest, thanks to high taxes and inflation, and the challenges faced by inflexible with profit policies, for most savers they were the only choices. True, some investment and unit trusts existed, but they were branded as dangerous by the few experts around. Money pages were few and far between, and there was no investor protection.
It was the Wild West for savers hoping to better their after-tax returns. In the mid-1970s high earners with investment and deposit income were taxed at up to 98%. With high, and ever-changing taxes, high inflation and no sheriff around to protect investors, new “attention seeking” products were churned out. Many were scams, but looked kosher to the untrained eye. What attracted the unwary were high “tax free” income plans backed allegedly with “safe stuff,” like gold, property or gilts. Who remembers Nation Life, Signal Life or Barlow Clowes?
The Government of the day introduced the Financial Services Act of 1986 just in time for the 1987 stockmarket crash, which sent investors scurrying back to “safe” investments like highly taxed deposits still ravaged by double digit inflation, anything with “guarantees” attached, and into the clutches of institutions like Equitable Life whose policies were allegedly cheap as chips. Equitable for the next 13 years were eulogised by the media. Turned out it was a massive scam as I pointed out publicly 3 years before the courts and regulators closed them down.
Have you noticed that investments pushed by the media tend to turn out badly? You can track that through every cycle from the 1970s. And despite the 1986 Act and the updated 2000 Act, both designed by eggheads to protect investor and consumer confidence, there’s no evidence that they’re working. Sadly, thanks to the internet, websites and bloggers breeding like rabbits, 24/7 reporting by unregulated money “experts,” and an epidemic of pessimistic and/or scary headlines, today’s investors are more exposed to scams, fears and cons than ever.
10 years ago there were still some financial journalists around who saw their role as giving both sides of the story, quoting both optimists and pessimists in financial/investment matters and leaving their readers to decide whom to believe. In 2009 for example in the midst of the worst financial crisis since the Great Depression of the 1930s, I had the opportunity in the Daily Telegraph to write why I thought an imminent Bull Market was a given. I was a lone voice at the time.
That article appeared 2 weeks before stockmarkets started rising in March 2009. I wrote another 3 articles that year, the last one exactly 10 years ago after the FTSE 100 Index had risen by 50% and most experts called it a false trap. Being a lone voice I received hate mail from Telegraph readers still sitting in deposits. Up here in November 2009 financial journalist Simon Bain wrote about a survey of 160 wealth managers which found that only 5% believed we were in a bull market.
But every year since it’s been fashionable to predict doom, crashes and recessions just round the corner. Dr Ed Yardeni lists 65 experts’ pessimistic predictions over the last 10 years that have been wide of the mark. Last week, JP Morgan listed “Armageddon” predictions of 17 world famous pessimists since May 2010, and tracked the dire financial consequences of responding to them. I have the complete list if anybody would like to see it.
I have looked back over the last 20 years to ascertain if there’s a relationship between financial headlines and subsequent investor outflows and inflows (or Fear and Greed). And there clearly is. Or it’s just a coincidence that, especially in the last 10 years, outflows from equities coincide with adverse media headlines. Investment bank UBS last week referred to a survey of over 3,400 experienced investors which found that 4 out of 5 expected higher volatility, most were fearful, and that “investors yanked about $60 billion out of funds in the 3rd quarter, the largest outflows for a quarter since 2009.” Remind me what happened after the 2009 panic? You couldn’t make it up.
I’m not saying we are perfect. Far from it. But we do try really hard. And we care about doing our best to protect you. And that includes learning from mistakes. If I hadn’t made investment mistakes over the years I’d have at least 10% more today. But on balance I’ve done well, though some have been crackers and I’ll share them with you one day. But we’ve found that one way to minimise mistakes is sticking to our football team approach. Even with one player being red carded, our balanced team should have held its own against the media’s alternatives over the last 5 years.
This year we’ve been increasing our efforts to spot winners. It’s been a long and winding road, a road with many twists and turns but despite the odd pothole, we remain determined to see you through to your chosen destination.