LIFE IS FULL OF UPS AND DOWNS

In between newspapers being closed, and the top brass at the Met resigning, there have been reports in the press of the meeting of European leaders taking place and how this holds the key for stockmarket returns. Some of the reports have stated that we are on the verge of Armageddon, and that the market could fall to 2008 levels.

The truth is one of three things might happen: the markets could fall, markets could be unmoved, or markets could rise. In other words it's just like any other day. I am certainly not going to try and predict what will happen in the short term so I find it amusing that so many people are prepared to make such bold predictions and have them reported as fact in the press.

As I have mentioned many times, the key to being a content investor is having a spread of different types of investments including cash. This allows you to live your life without worrying too much about the impact short term events, and the doom and gloom headlines that go with them, as you know you can always access capital should you need it.

Anyone who invests in the market has to be prepared to see the value fall as it is not possible to achieve real long term growth without being able to accept this risk. There have been funds that have tried/pretended to achieve this, but anyone who is, or has been, an investor in the majority of "with profit" funds or with Bernie Madoff knows this to be a mirage. Other too clever by half plans have come and gone with "guarantees" apparently offering financial Nirvana. In my experience, once a phrase along the lines of "we have back-tested and this strategy would never have failed in the past" is mentioned it is time to head for the hills.

There are, however, funds and managers who have been able to mitigate a lot of the falls seen by the markets in general without resorting to smoke and mirrors. Sebastian Lyon who manages the Troy Asset Management Trojan Fund and David Jane who used to manage the M&G Cautious Multi Asset Fund and now manages the just launched TM Darwin Multi Asset Fund have both demonstrated over the years that they have the skill to, if not prevent falls, at least ensure that they are much reduced.

By way of example, in 2008 when the FTSE 100 index fell by 34% investors in the Trojan Fund saw it rise by 1.1% and the M&G Fund fall by only 2.6%. To do this in a year when equities, property and most fixed interest stock fell considerably takes some doing, especially as neither fund does any sort of hedging. However, although both Sebastian and David's funds are by their nature cautious, neither manager would ever dream of making any guarantees that their fund will not fall and both would admit that falling markets are a fact of life that every investor must live with.

There is a phrase I love which is "a cynic is an optimist with experience" and it certainly applies to me. The truth is newspapers and media in general love reporting on events that create panic and hysteria. If it was so certain that markets were going to plummet as a result of the heads of state meeting do you not think that the plummeting would have started before the meeting took place? Very rarely do events that are well reported have anything other than a short term impact on markets.

No, it is the things we are unaware of that cause the biggest problem, and they tend to crop up when everything looks rosy, as anyone who invested in technology in 2000 can attest!

PS - A few months ago an article in The Times reported that Neil Woodford, the star manager of the Invesco Perpetual Income and High Income Funds, had lost his way and that it was time for investors to look for alternative funds within the Income sector. I know this as the article was sent to me by a concerned client. It is a classic example of why it makes sense to beware what you read, as for the year so far, Neil's fund is ranked 4th out of 107 funds and is up by 5.6% compared to the FTSE 100 index which is down nearly 2%.....

(Source - all stats FT.com 21 July)

Steve Forbes

Steven Forbes

Managing Director
For and on behalf of Alan Steel Asset Management

Authorised and regulated by the Financial Services Authority
Award Winning Investment Advisers

Steve
Author
Steve Forbes
Managing Director
Alan Steel Asset Management Ltd is authorised and regulated by the Financial Conduct Authority

The Financial Conduct Authority does not regulate tax advice

This letter is the personal view of Steve Forbes. Please check the appropriateness to your individual position with your adviser before taking or refraining from any action.