Fleetwood Mac (1977)

Well we made it through August despite the North Korean “missile crisis”, umpteen predictions of an “imminent stockmarket crash” and our wettest summer in 80 years.  All we have to do now apparently is hold our breaths until after St Leger Day on the 16th and they say we’re home and dry, if you forgive the pun.

Mind you August wasn’t at all kind to poor old Neil Woodford.  His ratings in the media plummeted faster than those of Kim Fu Yuan and bad Mr Trump since I mentioned Neil last month.  Scribblers at “The Times” put the boot into Neil as is their wont over the years.  Quoting erroneous 3 year performance statistics plucked from obscurity somewhere.  His returns were almost four times higher.  But why allow facts to get in the way of a good story now seems to be common practice.

Three years ago they recommended to their readers not to back Neil’s new venture when he left Invesco Perpetual.  They said he’d lost it.  Funnily enough until last month he was first out of the Income funds in our preferred list.  And, despite August he’s still comfortably ahead of the FTSE100 total return, though that fact wasn’t mentioned anywhere.  (Source Lipper stats)  Even as far back as 1999 during the dotcom bubble, “financial hacks” advised their readers to abandon his “old fashioned approach” and switch to the “new paradigm”.  Oh dear.

These days an increasing number of financial commentators encourage readers to “do their own thing” trading stocks and cheap alternatives called ETFs.  DIY enthusiasts should be reminded of Warren Buffett’s thoughts… “Calling somebody who trades actively on the stockmarket an investor is like calling someone who repeatedly engages in one-night stands a romantic”.

Last month I warned that Septembers are often accompanied by scary headlines.  Got that right then. Take Hurricane Irma.  An enormous destructive storm the size of France, and one of a few in 2017 making landfall on the Caribbean, Mexico and the US.  Somebody on telly said this is the worst hurricane year ever.  Presumably he’s omitting the 7 hurricanes of 1886.  And as to fatalities Irma is way behind 1900’s Galveston hurricane which killed over 8000.  Wonder why they’re ignored today.

And if hurricanes aren’t bad enough there’s more, there’s more.   North Korea’s Kim is misbehaving again, there’s a Sterling crisis, and experts predict that robots will make us all redundant.  Consider these September headlines… “North Korea fires Missile over Japan”.  The Sterling Crisis: Pound goes Into Freefall”.  And “Alter our DNA or Robots Will Take Over, warns Hawking”……

Sound familiar?  Would it surprise you to know the first headline was from “The Guardian” in September 1998 ?  The second from “The Independent” in September 1992.   And the third from “The Guardian”, September sixteen years ago.  Some things never change.  (Source M&G)

Perhaps we didn’t notice Stephen Hawking’s warning thanks to what overshadowed it …. 9/11.  Now that really was scary.  And the timing couldn’t have come at a worse time.  Just as investors were thinking of returning to stockmarkets after the Dotcom bust.  But has the last 20 years for patient balanced investors been as bad as headlines make out?  Check for yourself.  You’ll find that much maligned Mr Woodford handsomely outperformed both the Dow Jones and FTSE100 total returns

Please do remember “Nullius in Verba”…. And always check for yourself.  Always, no exceptions.
You do have to be very careful forming conclusions simply believing what you read in the ‘papers or see on telly. This month I head to Ibiza celebrating the fortieth anniversary of my first trip there in Autumn 1977.   Been on the island every year since.  Probably 100 times in total.  It’s that special.

But most people who form poor opinions of Ibiza (the party island) do so without having gone there. Their conclusions are formed only by reading critical articles or watching manufactured sensationalist TV programmes.  And yet Ibiza is a stunning green island attracting increasing numbers of wealthy holiday makers, many flying there in private jets.  It is now the most expensive spot in Spain to buy property.  And it’s the home of world brands Café Del Mar and fashion house Desigual, both of which started out there in small premises in the early 1980s.

Yet tell that to my GP who I visited last week. “Going on holiday again?” he said erroneously… “where to?” . “Ibiza ? ….  Aren’t you a too old for clubbing ?”.  Usual story.  He’s never been.  Hope his medical diagnoses are more accurate.

Last week I was asked by two outstanding financial journalists wondering if we went along with the popular view that this Bull Market which began in early March 2009 is overdue a crash (or correction as some call it).  This overdue thesis has been repeated no fewer than nine times since 2010.  Oops.

Here’s my reply. (And apologies if this is a bit complicated). The consensus right now is that the Bull’s overdue a punch in the nose by a Bear simply because “it’s long in the tooth”.  I asked Ned Davis Research for Dow Jones Index cycles from 1900 to study the patterns.  Comparing similar periods over the last 117 years there’s a further 18 times when within long term (Secular) bull markets there are similar periods.  The current cyclical bull has lasted less than 400 trading days since the last 20% “correction”.

Out of the previous 18 similar bulls, the average lasted twice as long as the current one, and the average gain (Dow Jones Index with dividends reinvested) was 135%.  So far this bull is up only 40%  Interestingly 8 previous bulls lasted over 800 trading days, with 2 lasting 1750 days at least. (source NDR research).   Simple probability suggests this bull isn’t giving up any day soon.

Both Sir John Templeton and Warren Buffett emphasised a Bull market ends when investor euphoria is widespread.  Well I don’t know about you,  but with investors still piling into “safe” bonds over in the US at the rate of $1 billion a day since January 2016, (Source INTL FCStone) with so much in deposits here and over there earning next to nothing, and with “cheap passives” attracting attention, I’d say “euphoria” is some way off.  And it should be obvious when it eventually turns up.

As to the pessimists who claim the world economy will suffer from Hurricane Irma and Typhoon Hato damage, it’s well worth remembering they said the same about the Japanese Tsunami in 2011. Wrong again.  Here’s a few words from Warren Buffett  “In the long term the stockmarket will be good.  In the 20th Century the US endured 2 World Wars, other expensive military conflicts, a Depression, lots of recessions and financial panics, oil shocks and the resignation of a disgraced President, yet the Dow Jones rose from 66 to 11, 497”

For the fortieth year since 1977  “hey I’m going to Ibiza” .  In the meantime folks do “Stay Calm and Chill”. I know I will.

Alan Steel
This letter is the personal view of Alan Steel. Please check the appropriateness to your individual position with your advisor before taking or refraining from any action.

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