“Never in the history of human medicine has so much been sacrificed by so many to prolong the life of so few. The sooner we stop the idiocy of this fascist lockdown the better“
Kevin Pakenham (1947- July 2020)

 “Question everything.  The opposite of question everything is question nothing. And if you don’t question things, there’s no knowledge, no learning, no creativity, no freedom of choice, no imagination. So I always ask why? And why not?  I ask question, question, question.  And then I listen. That’s how you discover something new”
Heston Blumenthal

On The Money: Alan Steel

I know I sound like a broken record but somebody has to put forward a case for the defence of equities as suitable investments.

We’ve heard the case for the prosecution day after day, night after night, from witnesses handpicked on purpose. Their case is based on emotion, supposition and circumstantial evidence, but short of facts. They say economists belong to this school or that one, but they all seem the same to me. Nothing is ever right for them. It’s always too high or too low, rising too fast or falling too slow. Oil’s this. Debt’s that. Etc etc.

Have they forgotten that money is just an illusion? These days it’s almost always electronic pulses. Is there really a difference between debt and so-called real money?

So what’s debt, and what’s real money? I used to say that the problem with RBS was that on the left hand side of the accounts there was nothing right, and on the right hand side there was nothing left. Ha!

Today it’s widely believed that gold is the real money, but is it? After all, it replaced seashells and bags of salt. But I wouldn’t fancy standing in a soup kitchen queue with a bag of gold on me. Oh, and do remember, it doesn’t pay you any income.

It’s worthwhile at worrying times like this to pay attention to sentiment indicators. Today the investor sentiment on gold is off the scale in extreme optimism while sentiment on some equities are as low as they’ve been at previous worrying times like 2008/9.

I wrote the above for a national newspaper in August 2011. Yes, really. Spot any similarities?  At the time, as is the case today, and as was the case in 2014,  experts worried about inflation spiking up and opined that debt levels were far too high. According to who you listened to, we were either heading into recession or were already there. Gold was the place to be.

Nine years ago this month the gold price hit a record all-time high of $1917.90 and experts like senior US market analysts were predicting gold prices continuing to “gain lustre, even reaching $5000 or $7000 an ounce over the next few years”.

This is what one expert at the time added on CNN Money … “Debt issues in the US and Europe are playing a huge role in why investors are buying up gold, and those are not going away anytime soon. I can’t see how the US can get out of debt without debasing the dollar,  so that will continue to support gold prices”.  (Go check what happened next….)

‘Take the brave pill, as one of my clients is fond of saying.  Stick to investments capable of growth’

Sounds familiar? Only this August gold finally broke above the record high set nine years ago, but not, of course, if you factor in inflation. Yet investors have been piling in lately while dumping record amounts of equities. Dumping equities at record levels also happened in late 2011, a record only then broken in October 2014.  ‘Buy High, Sell Low’ is still in vogue among private investors, despite its awful record.

Guess when was a good time to buy quality equity funds rather than gold? I appreciate that “this time could be different” as Sir John Templeton used to say long ago. I do appreciate that governments have made a pig’s ear of things over this Covid 19 farce. But I wouldn’t bet against the resilience of good businesses and independent thinkers/ inventors making good the awful mistakes of our elected leaders.

‘Take the brave pill’ as one of my clients is fond of saying.  Stick to investments capable of growth. There will be winners and losers. Winners are hard to find but well worth the effort, and the herd will not be beating a path to their doors. What’s popular at these times is usually the wrong choice. Best of luck.

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.