“During my 87 years I have witnessed a whole succession of technological
revolutions but none of them has done away with the need for character
in the individual, or the ability to think for yourself”
Bernard Baruch 

“There is some crazy part of the brain which simultaneously shows us that
every previous panic in the last 90 years was a buying opportunity but the
next one is to be greatly feared”

Mike Williams

I wrote December’s Letter earlier because unusually for the season of good cheer and glad tidings, storm clouds triggered by those perennial spoilsports, the Bah Humbugs were already darkening stockmarkets and boarding up advent calendars.  Given most key economic fundamentals the panic which continued until Christmas Eve didn’t make sense.  But that’s what happens when the inmates temporarily run the asylum.

For those who didn’t manage to get round to reading last month’s Letter that we sent out on the 6th entitled “Let It Snow, let it snow, let it snow” and for those still reeling from overindulging in Christmas and Hogmanay frolics, scary headlines and Carry On Brexit, which now surely qualifies as a Brian Rix style Whitehall farce, I suggest you have another read to bring some calming perspectives.  It’s on our website.

In the UK, Business News “commentators” focus on the FTSE 100 Index or its sister the All Share Index, whose day by day movements they link to just one factor/problem or another.  One day shares are going down (or up), because Oil is going up (or down) too fast, the next day shares fell because Oil’s going up (or down) too slow.  Just to sound convincing, they replace Oil with the Pound; Inflation; Interest Rates; Money Supply; Debt; and Gold.  Actually the list is never ending, as is the nonsense broadcast most nights.

They even manage to link UK stockmarkets to the health of the Global Economy.  Even if there was any correlation between the FTSE and the world economy, which there isn’t, why they conclude that the UK at only 3% of world GDP is significant in the grand scheme of things is one of life’s mysteries.  As an example, California’s economy is bigger than the UK’s, and if it were a country it would be fifth biggest globally.

Now you may recall that from September to Christmas Eve, stockmarkets were falling faster than Tory Ministers were resigning.  Consequently newsreaders and investors became increasingly nervous.  In fact 2018 was highly unusual in that it was only the second year since I was born (in 1947) that there were two separate falls of 10% or higher in the Dow Jones Index.  Last year there was one in January/February, and the other from September.  As Christmas approached and falls intensified it was even doubtful that Santa would turn up.  The annual Santa rally didn’t.  All was lost “they” told us.  The baw, as they say in these parts, wiz burst.

As the gloom intensified, too many investors forgot the two most important lessons hard-learned over the years.  Never ever make emotional knee-jerk investment decisions and keep well away from stampeding herds.  Panic selling of equities was reported before Christmas here and the US.  Huge volumes piled into “safe havens” such as US Treasuries (Gilts to you and me) and Absolute Return funds which are better categorised as absolute rubbish.  Deposits earning diddly squat piled up like an EU butter mountain.

Contrary to what we’re told about bubbles, burgeoning debt and low savings rates in the US, hard evidence tells a different story.  US private household wealth according to official Federal Reserve data has increased since 2008 by 82% to stand at over five times total US income (GDP if you prefer the confusing term).  Debt has actually fallen in relative terms and “investor” deposits in the US stand at $14 trillion, about 70% of annual total US household income.  That doesn’t looks like trouble to me.  How about you?

In December’s Letter I reminded readers that “Since I was born there’s been no fewer than 77 times when “markets” dropped between 5% and 10%, 27 “plummets” of between 10% and 20%, and at least 3 “crashes” of 50% or more.”  So what happened last year wasn’t unusual. The yearlong calm of 2017 was, however, and you know what they say about Law of Averages.  Incidentally, if you didn’t succumb to the pre-Christmas stockmarket panic, you’ll be feeling rather chuffed already, with some markets up over 12% since Boxing Day.

However, the UK market in the shape of the FTSE 100 is less likely to bring widespread joy and goodwill any day soon, thanks not only to our political Muppet Show but also to the poor “design” of the index.  It’s called a Capital Weighted Index.  What this means is it’s dominated by companies whose shares have attracted more investors for whatever reason, real or imagined.  The more the business is “valued” the greater the share it takes up of the Index.  In the FTSE 100 Index the top 10 stocks can make up 50% of the index, and as the 100 dominates the All-share, tracking either this last 20 years won’t have given you much joy.

Somebody (whose name I forget) put it rather well when he said “investing in the FTSE 100 Index for profit is like trying to reach a destination driving along a road you’ve never been on before, in the dark, by looking only through the rear view mirror.”  Yet it appears from inflow stats that an increasing number of investors are attracted to UK trackers, despite woeful returns this last 20 years.

So, am I saying that all is well and we don’t need to be careful when investing from now?  Am I suggesting things will be hunky dory, and we should all go ahead and buy the hot stocks so many websites push our way?  No I’m not.  There’s every chance we’re not out of the woods yet.

Those of you who have read my Letters over the years will recognise that my optimism is tempered with a slug of commonsense.  That’s what 46 years’ hard experience does to you.  Somebody said to me at the “purvey,” (Scottish expression for a gathering of folks sharing memories over a couple of drams following a funeral) after the funeral service on Monday of my wonderful old friend and client Douglas, ……that they bet I was glad I wasn’t having to start ASAM in “these impossibly difficult economic and political times.”

Please do read December’s Letter to remind yourself of the large menu of economic and high taxation woes in the 1970s and 1980s.  I started ASAM in early 1975 right after the worst UK stockmarket falls since the Great Depression in the 1930s.  I met Douglas in 1978 as economic chaos continued.  It was on his 60th birthday in 1981 that he asked to become a client. His brief was that I should help him plan for retirement and “look after Nan and I in our golden years.”  (His actual words).

His beloved Nan sadly passed away in May, and Douglas at 97 who had looked after her loyally 24/7, through the last five or six years when her Dementia worsened, fell ill and died just after Christmas.  We at ASAM looked after their finances for nigh on 38 years.  When I asked Douglas only a couple of years ago if he’d prepare a testimonial for us he wrote the following, which touched us all, and which was only removed from our website on his death.  We have his family’s permission to quote his words and tell his story….

“I always say that apart from the day I met the girl who became my wife, the luckiest day of my life was the day I was introduced to Alan Steel.  Now that my wife and I are the wrong side of 90 the great advice from ASAM, initially on investment growth, and then on income, gives us a quality in retirement many dream of but few manage”

….. D Snedden, Bo’ness, Scotland

When you receive accolades like this and you’re also selected to deliver a Eulogy at his funeral, you appreciate how important it is to folks like Douglas and Nan that you always deliver your best sound advice through thick and thin, and help keep them safe from the Bah Humbugs.  You’ll be glad to know that we intend to continue in that vein.  Do have a great year.

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.