“Nothing is as good or as bad as it seems” – Scott Galloway, Professor of Marketing, NYU

“There are decades where nothing happens and there are weeks where decades happen” – Vladimir Ilyrich Lenin, Russian revolutionary

Didn’t Vladimir call it spot on? Two weeks ago the world was heading yet again for soapy bubble according to world champion pessimists. Just to remind you, here’s what I wrote for Daily Business on 2 November, the day before political and economic fireworks were widely expected the following day thanks to the big fight between defending champion Trump in the Red corner and the ageing challenger, Biden in the Blue.

“We’re told by all and sundry that the looming US Election is unprecedented because of the bitterness of the two sides. And in addition, investment house UBS reports that almost two-thirds of US High Net Investors (with in excess of $1 million of investible assets) have either increased their cash positions or moved heavily to perceived caution, worried about the aftermath of a Democrat victory and the sharp increase in taxes expected.”

I then went on to remind readers and investors what eminent Nobel Prize winners and other dismal Charlies predicted four years earlier when Trump won unexpectedly. Gloom everywhere, naturally. And as usual completely wrong .

So, if we look at the opening quote again, what have we learned only two weeks later? Well, it’s a reminder to pessimists that it’s never as bad as it seems, just like in January, when optimism was in the air it wasn’t a good idea to get carried away.  So what can we track that gives us a fair chance at working out what’s likely to happen in stock markets?

The Bank of America for many years has produced an investor sentiment tool that measures how positive or negative investors are feeling about stock markets six months out. It’s called the Bull and Bear Global Indicator. Picture a rainbow that goes from green which measures extreme pessimism, up through yellow and orange as sentiment improves, all the way to bright red which flashes danger when the crowds become over-optimistic.

‘Those of us who been in the savings industry for 50 years hadn’t seen anything like it before.  I don’t know how you felt, but for me the pain was excruciating’

Putting numbers to the rainbow, a swingometer goes from Zero in deep green to ten in bright red. Historically, when the needle pointed to two or below it’s proved to be a strong Buy or Hold signal, and when it points at around eight or higher it’s been time for a sharp exit. It’s hard to believe but in January this year the indicator had risen to just below eight. Oops.

Now guess what the needle was pointing at on the day that Covid Lockdown panic hit the news on 23 March?  Who’ll start me off at 2? Higher? Lower? Who just shouted Zero? Well done, missus. Spot on. The swingometer had fallen off a cliff and hit 0. You can’t get any more pessimistic than that. From memory it was a record low, lower even than the early days of the Great Financial Crisis.  Those of us who been in the savings industry for 50 years hadn’t seen anything like it before.  I don’t know how you felt, but for me the pain was excruciating.

Which oddly enough is a great contrarian sign.  What was it that Warren Buffett used to say? “Be greedy when others are fearful, and fearful when others are greedy.” Aye right.  Easier said than done.  I follow the writings of Morgan Housel who hit the nail on the head recently when he said that asking an investor how they would feel if their portfolio fell by 30% is great in theory, but absolutely nothing compared to the sheer panic you feel when it happens.

So it may help you to know that the Bank of America Bull and Bear Global Indicator has been an accurate indicator when it gets close to the extreme ends of pessimism and optimism. Going back to the aftermath of the Dotcom boom, from early 2002 onwards, there have been no fewer than 18 occasions when the needle has pointed at 2 or below, and 14 times when 8 has been breached. Yes, really. That’s why it makes sense not to watch Bad News at Ten. It will simply drive you bananas and even worse, convince you to sell your investments or pile in, usually at the worst possible times.

Looking back much further it’s true that the Dow Jones Index, including reinvested dividends since 1950, has returned 11% a year to long term investors, doubling their money every six and a half years. On closer examination, for over 90% of the time it was at least 5% below its previous all-time high.  As elsewhere in life the bigger the potential returns the more the pain you have to endure. And it hurts when you have more and more ‘stuff’ to worry about.

Here are just some worries mentioned on Bad News at Ten you may recognise over the years that led you to sell perfectly good investments – nukes, shoe bombs, bird flu, SARS, mercury levels, asbestos, oil shortages, money supply, fiscal cliffs, stagflation, hyperinflation, deflation, tsunamis, hurricanes, asteroids, volcanoes, mad cows, global warming, the ozone layer,  identity theft,  food shortages, China, North Korea, and so on, and so on. Lately it was Trump and Brexit, and now it’s Covid.

To make matters worse this pandemic goes on and on.  And despite good news about vaccines, which together with the US Election result triggered a dramatic rise in share prices worldwide, giving the US stock market its best November since 1955 (bet you didn’t see that anywhere), our leaders decide to lock us all up yet again.

So do I have any tips for you? 1) If I’ve learned anything over the last 50 years it’s this: great businesses will continue to make money whatever the political environment, and no matter what obstacles are put in their way. 2) history shows that the best returns are seeded in despair. Like back in March when that needle pointed at zero. 3) Turn off the telly, open a nice red, fill your portfolio with best in class shares or funds and just chill.

And finally 4) When you do make some spectacular gains and if we’re still being locked down with our wives or partners with all the stress that entails, please don’t show them the gains or you’re likely to get a similar answer to the question I asked my wife yesterday- “What would you like for your Christmas darling?” “How about a Widow’s Pension?” she replied.  Ouch.