Choose your time, as the markets they are a’changin
“For the loser now will be later to win, for the times they are a’changin’“
“There are decades when nothing happens and there are weeks when decades happen”
On The Money: Alan Steel
What an astonishing time we’ve all had this last four months. The times sure are a’changin’ all right and Dylan was also not far away when he reckoned that the answer was blowin’ in the wind.
Regular readers of my columns in Daily Business will be only too aware of my criticisms over the political and wider media hype regarding this damned virus so I don’t intend labouring the point. Though I have to say I find it ridiculous and suspicious that there’s apparently no detailed data yet setting out categories of covid deaths sorted by appropriate age group bands, sex, race, and those with pre-existing illnesses.
But we do know that if you’re under 55 you have a 1 in 45,000 chance of dying ‘with’ the virus, while the under 25s have a 1 in 1.25million chance with or without a face mask. Yet soon in Scotland, if we want any life at all, shopping etc it will be the law to wear one. I wonder if anybody else can see the possible consequences of this madness. “Can you describe the men who attacked you, missus?” “Er, naw, they wore masks.”
Thanks to the OTT treatment by newscasters and headline writers aided and abetted by the social media hysterigensia many are in a constant state of fear. Far too many investors reacted to the early panic in March by selling their portfolios into a vacuum, losing heavily. And those who’d held shares or units a long time have incurred unnecessary tax into the bargain. A double disaster, made into a treble nightmare by then missing out on one of the fastest stock market recoveries in history.
Not that they will have noticed if they remain glued to the 24 Hour Bad News Extravaganzas. I bumped into a couple of old clients/friends the other day in my local supermarket staring wistfully at the spirits shelves. “We’re trying to economise” they said, “seeing as we’ve lost thousands in the stock market crash.”
Now where were they getting that idea from, I wondered? Turns out they were referring to a statement received on the 5 April. And, no, they didn’t believe that since then some stock markets had virtually recovered all the downturn ‘losses’. Couldn’t be possible, they said, because if that had happened it would have been on the news. Oh dear!
Thing is, if you’d fallen asleep after Christmas and just wakened up today then looked at your investment values you wouldn’t notice much difference. Unless, of course, you had decided to invest all your equity holdings in these cheap UK Index trackers much loved by the financial media. And you find yourself sitting nursing an 18% hole in your portfolio.
Twenty one years ago this month I spoke at a Rotary meeting about investing. There were a few local bank managers and accountants present. I pointed out that the FTSE100 index was dominated by banks, oil companies and telecoms. Vodafone, for instance, was so popular in the Dotcom era it was 16% of the index. The FTSE 250 index (the next 250 companies below the 100) was filled with faster growing businesses but that index at 6450 dragged well behind its big brother, then standing at 6950.
‘History tells us that when we have crises and dislocation, like now, there are remarkable opportunities for the brave and the patient’
So I asked them to consider investing in the FTSE250. Didn’t go down well. Today ‘expert’ economic commentators explain that the economic performance of the UK has been dire…”just look at the FTSE 100 for evidence of that”, they cry. It’s true that today the FTSE100 sits at under 6200, 21 years later. But what’s the FTSE250 today? I know it’s hard to believe but it sits today at 17,345.
But we need to be aware that indices are just names. What’s inside them can change so much that over the years how ‘experts’ can compare them sensibly really makes little sense.
Until 1976 there were no financial businesses inside the S&P 500 (which currently has 505 companies within it for some reason) in which normally the biggest quoted companies in the US sit. Over the last 50 years at least 20 businesses are dumped out of the index every year. After the dotcom bust of 2000, 56 were expelled and replaced. So indices make poor barometers of financial success.
Which is why my preference is to find fund managers who seek to buy the shares of great businesses at a discount and hold them for a long time. History tells us that when we have crises and dislocation, like now, there are remarkable opportunities for the brave and the patient.
Sure, things may never be the same again, but the prospects for the winners are likely to be special. However, there’s little point owning these winners within an index where average returns are likely to disappoint thanks to being dragged down by the losers.
Oh, by the way, Vodafone shares are still down 70%, 21 years later. Maybe not a good idea to buy what is the popular investment fad of the time.
Alan Steel is chairman of Alan Steel Asset Management
Alan Steel Asset Management is regulated by the Financial Conduct Authority. This article contains the personal views of Alan Steel and should not be construed as advice. Do check your individual circumstances with your advisers.