Now that Greece has been knocked off top spot after a decent run as Number One bogeyman for investors, commentators scramble around to find suitable scary replacements. A couple of days ago it was the surprise increase in UK unemployment figures. BBC interviewed "experts" who had grave concerns on UK economic performance "going forward" (why can't they say from now on?). A boffin at one of the country's biggest accountancy practices described the increase as "a shock." What was the increase? 15,000.
Now I thought that's funny. If it had been say 15,194 you'd assume it had been properly calculated. So how are UK unemployment statistics measured? From data collected from Job Centres? Or perhaps from information on actual pay-outs of benefits and then compared to previous months? Nope. That's far too sensible. Actually they're cobbled together from quarterly phone calls made to households selected at random.
Now I don't know about you but if you have a job it's unlikely you'll be in when they phone. And if you don't have a job (or retired) you'll ignore the phone ringing on the basis it's somebody with a funny accent trying to sell you something or you'll pick it up and yell obscenities at the caller to make you feel better. I've heard about people like that.
Anyhow somehow or other enough information has been collected to estimate there's 1.89 million unemployed and 30.1 million in work. An increase of 15,000 is less than 0.8% of the total. "Experts" don't admit apart from how this is estimated is that because it's a sample there's a discrepancy of plus or minus 3% in the numbers. So a 15,000 increase could have been a decrease of almost 57,000. But then that's good news so doesn't qualify as a headline.
China's problems qualify though. Bubbles bursting everywhere. Headline writers tell us the Chinese Stockmarket's down over a third in a month and that's a crash. True, but it's still up over 70% in a year but where do you see that mentioned? American analyst Scott Grannis who's rarely quoted probably because he's an optimist reckons China's not collapsing, it's just learning how to deal with its new found prosperity. And it's in its blood to gamble.
It's only a couple of years since headlines accompanied photos of empty cities and motorways in China. This was proof "experts" claimed that China was wasting money loading up on debt on ghost cities with no future. One such city was Zhengdong. Google it today and you'll find a bustling city. Even Tripadviser rates over a 1000 hotels there. Never seen that mentioned anywhere. Old news apparently!
Never mind there's always plenty to worry investors. As Josh Brown over in New York might say…. "being told that some country somewhere is on the edge of a default is like hearing Dean Martin is on the edge of a Martini." Yet investors fall for this merry go round of shock horror reporting all over the world. In the US, figures show private investors have now over $8 trillion in deposit earning the square root of …well…not a lot. That's up from $1.8 Trillion ten years ago and it's a lot of dosh to keep under the mattress. And US corporations have been holding record levels of cash too. Experts call that liquidity.
Even the French are hardly Ooh La La about equities. Over the last 7 years their professional and private investors have piled big style into Euro Cash and French Bonds. You wouldn't believe how much they've got sitting earning nil points (French accent on for that one). Only 4% of their wealth is exposed to shares. And still commentators tell us we're all too complacent?
Fear, Uncertainty and Doubt have been stirred up so much by skewed reporting that even Greece was seen as a potential world ender despite the fact that 31 hours of Walmart's trading was greater than Greek debt. And now that Greece is fading into the background newscasters have their knickers in a twist over an imminent quarter per cent rise in the UK Bank Rate. A quarter per cent! Hey we survived 6% increases on mortgage costs back in the late 1980s pushing rates up to 15% for goodness sake. And we had double digit inflation…… And they say we were the lucky generation?
A successful fund manager friend was asked by a journalist "What's the secret of your success?" … he said "Two words … Right decisions." But how do you make right decisions he was asked … he replied … "One word … Experience.." And how do you get experience asked the reporter … "Two words" he said … and what would they be? "Wrong Decisions."
For the best part of 30 years I've been convinced successful investment isn't down to chance or reacting to scary headlines. I was always searching for the answers. Wasn't in bad company I now learn. Warren Buffett's right hand man Charlie Munger says he spends his time reading and thinking. I've developed it further by adding the odd glass of red wine. My closest friends said I was daft. Why didn't I just accept that there were no secrets, and it was down to fate? So Buffett, Bolton, Greenblatt or Woodford, to name just four outstanding investors were simply lucky? I couldn't accept that. Oh no.
So I've read and read, searched and compared. What works what doesn't? Who gets it right or wrong? Any patterns? After the mistakes comes experience. Then we found Ned Davis Research. As they say it's not possible to be perfect. But all successful investors make wee mistakes not big ones. So it's about reducing risk through a process of tracking objective indicators. And being comfortable as a contrarian. Not easy. But as author Max Lucado said " If you want to lead the orchestra you must turn your back on the crowd."
And where's the crowd right now? Sitting awash with safety. More than a fair chance they're wrong I'd say. Don't you?
This letter is the personal view of Alan Steel. Please check the appropriateness to your individual position with your adviser before taking or refraining from any action.