The Long Game
“Well I don’t know why I watched that tonight, I’m left with a feeling that something ain’t right
I’m so scared in case I lose all my shares, and wondering how to get rid of these bears
Clowns to the left of me, Jokers to the right, here I am
Stuck in the middle with EU” (with apologies to Gerry Rafferty)
October was a daunting month for investors still believing everything they read, hear or watch regarding constant bad news stories delivered these days minute by minute. It went something like this…. China and America will end up in serious soapy bubble “if they’re no careful” as my grannie would say, tariffs will end world growth (which is allegedly imploding anyway), the falling oil price is a sure sign of an impending recession but so was the rising oil price only weeks ago. And if that’s no enough, Brexit will plunge us back to the Dark Ages with no Valium available thanks to blockades from the EU.
I wrote that paragraph before a few days trip to York this week. Then things got even worse. First it was the Dow Jones reversing its recent gains in a 600 point fall. Next day the pound “soared” by less than a smidgeon on news of a Brexit deal, followed by a “plummet” of slightly more than a smidgeon the next day because the deal was crap. Surprise, surprise.
Most of that, I gleaned from overhearing conversations between folks who wouldn’t know a plummet from a soar, never mind a P/E ratio. In our home we have only one TV tuned permanently to Football Channels and Midsomer Murders. There’s one un-plugged radio in our kitchen, an in-car “entertainment system” which only entertains, and our Ibiza Room with a fancy music system which goes perfectly with smelly candles, my moothies, a real fire and open bottles of Rioja reservas. No need for Valium in our house.
“But you’re on Twitter and Linkedin” I hear the digitally-sophisticated amongst you retort. True. But that’s just via my iPad which I use to follow folks and resources (like NDR) whom I’ve discovered to be accurate through many long years of hard work, painstaking research and back testing. I started off following over thirty “recognised experts” then gradually got rid of those who were either constantly pessimistic or permanently optimistic. Both lots are as much use as a chocolate teapot.
Regular readers of this monthly Letter will be only too aware of the much quoted perma-bears like Marc Faber and Albert Edwards who constantly predict doom, gloom and crashing asset prices year after year. Edwards is at it again. Last week he predicted the US economy will collapse next year, something he also predicted to happen over five years ago when he called for Gold to hit $10,000 and the S&P 500 index to crash to 450 (Gold is $1220 now and the S&P is 2800 today). Not even close.
But this month a new bogey man appeared. David Stockman come on down! David comes highly praised as a former Ronald Reagan US Government aide. What he reckoned was picked up by nervous investors from Hawick to Hong Kong. Here’s what he had to say on November 1st on CNBC…..
“A 40% drop in the stockmarket will take out the Bull Market.” What viewers weren’t told was that that’s Stockman’s fifth “crash” prediction since February. Prior to that, he made six highly publicised crash predictions in 2017 that were worse, ranging from “a market bloodbath” to “a horrendous storm.” Eight similar wrong calls in 2016 included this cracker from him in February that year…..
“I don’t know what the bulls are smoking. Anyone who believes the global economy isn’t crashing must be delirious” Pot kettle black ?
And on fifteen previous occasions between October 2010 and November 2015 Stockman predicted crashes and crises to be caused by everybody from Ben Bernanke, to the Democrats, to trade wars. He’d be fine though. In October 2010 he claimed to have invested in what he said the US Fed couldn’t destroy. That included Gold, Cash, and tins of baked beans. (Well at least he benefitted from a following wind.)
Now if you’ve been listening to all this gloom and watching the daily price movements of your portfolios over the last three months you’ll be feasting on antacids by now. But that’s not how to go about building real wealth. Yes it’s true that the FTSE All Share Index Total Return is down 5.5% over the last 3 months. But it’s also true that it’s up 28% in 3 years and up 162% in 10 years. (source: Lipper 16/11/18).
But for added perspective a favourite “defensive” income fund of ours we’ve recommended for over 10 years is down 2.7% in 3 months, but up 54.8% in 3 years and up 227.6% in 10. (source: Lipper 16/11/18). Sitting still on the way to your chosen investment destination makes much more sense than you’d imagine. A report we saw this week put such patience into greater perspective. Over the 10 years to the end of 2017 if your “journey” was the FTSE Index Total Return, and you missed only the best 10 days your return would be 48% less. Missing the best 30 days in that ten years would have seen your investment return fall by over 75%. (source: Axa Framlington 16/11/18).
I’m now at an age when I can attest to the power of the long game… Setting a goal, sticking to a process and ignoring all the noise from others. I’ve experienced the value of compounding and sticking to the knitting instead of playing the short game of chasing fads, reacting to headlines and listening to miserable pessimists.
The other day I came across a story of a retired school teacher in Connecticut who turned up at a lawyers’ office not long before her death some 7 years ago, seeking help with her estate. She thought she was possibly worth some $40,000, but she was miles out. She died leaving $6 million. How did she manage to build such wealth? She played the long game and stuck to her process. Compound interest did the rest.
As Shane Parrish at “Farnam Street” reminds us “The long game isn’t particularly notable and sometimes it’s not even noticeable. It’s boring. But when somebody chooses to play the long game from an early age the results can be extraordinary. The long game changes how you conduct your personal and business affairs.”
But playing the long game isn’t easy. Here’s what US investor Anthony Isola had to say this week…. “If at times investing doesn’t scare the crap out of you, require sacrifice and cause frustration, you are doing something wrong”.
The short game spawns bubbles. I saw that back in the 1970s with Gold bulls and in the 1990s with the dotcom boom. Last year it was Bitcoin and other cryptocurrencies. All short term fads. All came to sticky ends. Meanwhile our focus, as it has been for years now, is fixed on the long game. So we research and read as much as possible. Well if it worked for Buffett…. Next we identify quality fund managers who stick to their long term process. And we meet with them regularly.
You may remember our “fantasy fund manager football team” approach. It plays the long game. If you want to have a team capable of winning through thick and thin, you need a solid defence supporting top-notch goalkeepers, a world class midfield of grafters and outstanding strikers to give you an edge. Barcelona or Barnsley is a comparison I’ve used as an example over the years.
In closing let me remind you of our biggest long term holding, our first choice goalkeeper. His aim is to always be a safe pair of hands. The fund was launched in the summer of 2001 before the horrors of 9/11. On all eighteen measures of risk, return and volatility the fund trounces the FTSE All Share Index. Safer by miles through the treacherous times in 2003, and 2008, less volatile, and yet with an annual steady return which over the seventeen year period delivered over fifty per cent more than the Index total return. And over the volatile last six months it’s up 1.6% while the Index is down 7.26%. (source: FE Analytics 16/11/18).
Helps us sleep at night. Sweet dreams.