Steven Forbes, Managing Director, reminds us of Sir John Templeton's words.
Time to be like Minty?
I used to produce these on a monthly basis and, to be honest, sometimes it was a struggle to come up with anything topical to say. Oh, for those days again!
Now I could produce these daily there is so much going on, and we are going through what can only be described as a remarkable period. However, at times like these it is important to take a step back and try, as much as possible, to keep emotions in check as, at the moment, panic is enveloping the markets and rational thought has gone out of the window. An example is the oil price. When it was $145 a barrel the oil price was blamed for the falls we saw in the market. Now it is under $85 a barrel the market is still not happy. As little as three months ago inflation was the major concern, now it is deflation. You could not make it up!
Sir John Templeton, who died earlier this year, had ten principles that he stuck by through thick and thin, and they are as pertinent today as they have ever been. I always try and bear these in mind and I think our clients should as well. I will not go through them all but will point out a few that should be at the forefront of your minds.
The first one is "Buy during times of pessimism" - if he were still alive I imagine he would be "filling his boots" right now.
The second one is "This time is different are among the most costly four words in market history" - this phrase was bandied about at the end of 1999 as the tech boom was at full speed. It was used to explain why companies that had made no profit were valued higher than oil giants such as BP. At the time the bulls were saying that P/E ratios of over 100 would become the norm, even though history had shown a range of 15 to 20 was typical and represented fair value. Now we have the same phrase being mentioned in the reverse, with some "gurus" suggesting that a P/E ratio of 5 will be the norm from now on. Oh really!!
The last one is "Everything changes" - bear markets have always been temporary, and so have bull markets. One of the reasons we always ask clients how much cash they have on deposit is that we always want to try and ensure that they will not be forced to encash part of the investment they have in the market at times such as these. Much as it appears unlikely at present, this downturn will also prove temporary and life and valuations WILL get back to normal.
This brings me to the title of the email. The Minty I am referring to is not the mechanic in Eastenders, but a local character who, how can I say this, appears to be on a different planet. I see and hear Minty virtually every day from my office window as he goes about his business Ipod in ears and singing loudly. He also seems to be eternally happy. I very much doubt that Minty is aware of the Credit Crunch or even cares. When Minty goes to the bank his money is there, Tesco is open for him to buy his food, and his computer is working so he can download his music. To him life is no different. In reality, has it not been the same for all of us?
Apart from a few people living in trees who believe the end of the capitalist system is nigh, even the most pessimistic believe that this traumatic period will end sometime, and once proper valuations return to the market we will look back and think "wow, that was a roller coaster ride". However, what damage will we have done to ourselves emotionally and physically by worrying by the time that happens? I often think how much happier we would all be if we never read a paper or listened to the news, especially during a time like this and especially when a lot of what is said and reported is inaccurate.
As for how the market will move in the short term I really could not say. There is a chance we will see further falls as hedge funds are forced to unwind their positions. Equally we may well have a sharp spike upwards. Over the long term (three to five years) I am far more confident, as, in the words of Anthony Bolton, certain shares at the current time are the cheapest he has ever seen. At some stage this will be reflected in their share price but until then, perhaps we should all put on our Ipods!