Pepvsreal

“There is always something to worry about.  Avoid ‘weekend thinking’ and ignore the latest dire predictions of newscasters.  Sell a stock because its fundamentals deteriorated, not because “the sky is falling down”….  Peter Lynch, legendary fund manager

“Ye ken this, if it’s no one thing it’s another”……….  Nannie McKay, legendary granny

If you’re still reading headlines or watching Bad News at Ten you will notice the only things left suffering from rampant inflation are all the reasons why you should panic from investing to join the long term pessimists whose ‘savings’ still rot away in Cash ISAs and Bank accounts.

Everyday another bogeyman appears.  Indeed some don’t even last a day.  Where did Turkey go?  Did you spot the recently predicted Ebola virus scare?  Or did you blink instead?  This week stockmarkets fell because employment is too strong having fallen previously because somebody said it wasn’t strong enough.  Brexit is now the longest running disaster movie of all-time but for a day it lost out to the Swedes who were top for the first time since Abba.  What will “they” think of next?

Regular readers may recall I spend my time these days searching for interesting contrarian stuff to report when I’m not wine tasting.  (Two activities driven by an innate curiosity).  Recently, apart from discovering a scrumptious Uruguayan Red, I came across this “Totally Honest Stock Market Story” in the Wall Street Journal from over twenty years ago which I thought summed up the nonsense we’re still fed day after day.  I hope you enjoy it as much as I did…

“The market rallied early this morning for reasons nobody understands and nobody predicted.  CNBC analysts confidently asserted it had something to do with the Senegalese Money Supply, but others pointed to revised monthly figures showing a poor tuna haul off the Peruvian coast.”

“The Dow turned down in late morning due to profit taking - a meaningless phrase we financial journalists use when we don’t know what we’re talking about.  Around noon, tech stocks rallied (perhaps as a result of profit giving?) before a late wave of selling sent stocks lower.  This wave of selling was miraculously met by a wave of buying since in each transaction there is one buyer and one seller. ”

“All in all it was a normal day on Wall street.  Advances led declines by 4 to 1, bonds were incomprehensively boring, the Mets beat the Phillies 6 to 2, and Kate Winslet’s measurements remained 35-29-38.  But for this story, as in most financial services’ stories I will quote from a series of famous blowhards, all of whom predicted that this bull market would top out at 7500.”

“Some of the young bucks think that markets only go up and not down” said one commentator.  “Sure I’ve missed the last 6000 points of the rally” said another who shifted into gold last spring “but when the correction comes my position will be looking pretty good.”

“I thought the market was overvalued at 8000” says Chris Clough of Travellers-Citicorp-Disney-American-Express-Baskin-Bobbins-Lynch & Jenrette.  “Now that PE ratios are 67 times higher my argument is more intellectually coherent than ever.”

“We journalists put these quotations into our stories to prove we are savvy old heads (even if we’re 25 year olds) but if you listen to these old goats you are crazy.  Now to fill out the rest of my space so I can go home, I will now throw in a few company results - Microsoft was up 1/4, Dell was down 1/8.  Hi mum.  Exxon was up 31/8, Ford was up 1/2, Germany’s invading Belgium.  I see England.  I see France.  I see someone’s underpants.  Bloomberg was off by 21/2.”

Gobbledygook.  Right now on my desk are a couple of charts.  The first one shows the US S&P 500 Index, from 2012 to the end of August 2018 when it doubled, against predictions by “recognised market experts” from July 2012 predicting disaster.  For the record there were 13 “famous” doom laden predictions before 2015.  And another 9 by end of 2016, including the infamous call by the chief economist at RBS in January 2016 - “Sell everything and brace yourself for a cataclysmic year.”

Since then we’ve had repeat dire predictions from various career pessimists.  Since 2012, Robert Wiedemer every year, including earlier this year, repeated the following - “the data is clear, 50% unemployment, a 90% stockmarket drop and 100% inflation starting next year.”  I hear that Robert’s blood group is B Negative and that he still leaves the hall light on at night.

The other chart shows all the various “Reasons to Sell Equities” since March 2009 when the current secular Bull Market started.  Twenty-one much publicised “disasters” when experts confidently predicted that “the end is nigh.”  Despite their gloom US indices are up hugely.  Yes really.  Go check.

This week researchers in the US found a big gap between perception and reality in stockmarket performance.  Half the respondents were convinced the market had gone sideways over the last ten years.  One in five reckoned it had gone down.  And the reality? It’s up almost threefold.

Saturday 15th marks the 10th anniversary of the biggest bankruptcy in financial history, the Lehman Brothers collapse which triggered the Great Financial Crisis.  I was on holiday in Nova Scotia, just back from a trip to New York to meet up with Ned Davis Research.  At that meeting everything was going rather well until Joe Kalish of Ned Davis Research (NDR) entered the room together with some unwelcome black clouds.  Until Joe’s arrival the consensus was that the worst was past.

Joe disagreed and predicted an imminent financial Armageddon.  He was right.  Despite his accuracy Joe was never given any credit in the media.  I wonder why?  Could it be it’s because Joe has been optimistic this last nine years?  As has his colleague, Tim Hayes, at NDR.  And as we all know, good news doesn’t make good headlines.

But as we hit the tenth anniversary of the event that triggered the Great Financial Crisis what are Joe and Tim thinking now?  Well it’s fair to say they are a wee bit more cautious.  They still believe there’s legs left in this secular bull market but that it’s not a bad idea to bank profit from your best performers over the last 5 years.  And shift it to areas that haven’t been all that clever lately.  Some call it “reversion to mean.”  I call it common sense.

You can take it your consultant will be reviewing your portfolio to consider whether you need a bigger umbrella to shelter from any squalls heading our way.  No hurricanes imminent!!

alan-steel
Author
Alan Steel
Chairman
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.