“I would find myself getting deeply distressed if I lived in hindsight all the time”
“What is right is not always popular, and what is popular is not always right”
“Day after day I’m more confused……… the world outside looks so unkind,
So I’m counting on you to pull me through”
Dobie Gray (Drift Away, 1973)
It’s hard to believe that it’s 10 years since I was telephoned by a rather desperate Personal Finance Editor of the Daily Telegraph and asked if I’d write a piece for his Weekend Money Pages to put forward the case for investing in stockmarkets. I say “rather desperate” because while he was swamped by “experts” only too keen to share their doomsday theories of the “Global Economy’s End being Nigh” he couldn’t find anybody brave enough (or daft enough) to take the opposite positive view. True.
My article appeared on Saturday 21st February (a day before my birthday, but please don’t send pressies folks, but if you insist, just send wine. A wee Malbec is very acceptable thanks). It appeared online two days later on the 23rd and that’s when the fun started. Somehow doomsday theory disciples, the “gilets jaunes” of their day, got hold of my email address and sent me a fascinating array of rude messages of disapproval. Despite my solid working class roots, and having overheard my dad when he’d inadvertently hit his fingers with a claw-hammer I was still shocked by the language used by genteel Telegraph readers.
Cleaning it up, their suggestions varied from locking me up in a cell and throwing away the key, to their overwhelming favourite consensus view that hanging was too good for me. If I ever needed reminding that being contrarian wasn’t terribly comfortable or acceptable, it was then.
Cast your mind back to 2007/8. We all watched in horror the tortuous fall from grace of banks here and elsewhere, including the US. Governments and Central Bankers spent long days (and nights) in secret panic-fuelled sessions desperately trying to keep the financial system from total collapse. In September ’08 US Investment Bank, Lehman Brothers, vanished overnight. Stockmarkets plummeted. Not the “plunge” of 0.3% we see quoted in today’s headlines. I’m talking about a Sergeant Fraser “aw naw we’re doomed” collapse.
Consider this from the Peking Review …. “Throughout the United States from New York to Los Angeles, from Detroit to Pittsburgh the picture is of declining production, depressed markets, sharply rising unemployment, chaotic money markets and slumping stockmarkets. The country is in the grip of a deepening economic crisis, the worst since the Second World War.” Rather summed up the consensus view of the time wouldn’t you say? Or did it? Actually it’s an extract from the 7th February 1975 issue. Nothing changes, eh?
In October 2007 the Dow Jones Index had climbed to 14,165. Six months later it slipped to 12,820. After Lehman’s collapse in September ’08 it was down to 11,510, and by the time I wrote my piece that upset the online junkies on my birthday weekend, it was down to 7,114. That’s almost 50% off in eighteen months. Then by the 9th of March it fell further to 6,547, proof to my critics that I really did need locking up.
I remember it very well. Just before my Telegraph piece I was in the local optician’s for my annual check-up. I bumped into a former neighbour, Claude, who wondered if I was retired like him. I replied that I’d only consider it after a stockmarket recovery had replenished my clients’ portfolios over the following three years. Ever the diplomat, Claude said it wasn’t just my eyes that needed testing. Adding “everybody knows we won’t see a recovery in our lifetimes.” To be fair, he was half right. He died a few months later. But not before the Dow had risen from the 9th of March low, up 38% by the end of July.
In the Telegraph article I laid out my “reasons to be cheerful”, reminding readers that the experts who saw no future in stockmarkets were the same lot who hadn’t seen the crisis coming in the first place. The same useless bunch who predicted the US Dollar would plunge in value, that Gold would rise to over $2,000 an ounce, that Oil would rise to over $200 a barrel, and only a year earlier had recommended property as a decent bet. Every prediction so wrong it ought to have been embarrassing for them. But wasn’t.
There were more than a few reasons to be cheerful. Including, for example, the extreme pessimism held by so many and the record levels of Cash deposits held by otherwise experienced investors. Both are classic contrarian signs. And I concluded, “those prepared to take at least a two or three year view could do a lot worse than tuck away a selection of good-quality UK and International equity income funds.”
You may be interested to learn of the returns of our biggest 5 such holdings that we’ve held for clients (and me) for more than the last 10 years. The average total return including reinvested income, after charges, is up 195%. That’s 31% higher than a FTSE Index tracker, and light years ahead of any deposit returns made by the online junkie herd who hopefully will see all this on our website. (Not sure how you blow a raspberry in print).
Yet despite the above examples it’s still difficult for investors to ignore the continual gloom of doomsayers who continue to dominate Bad News on telly and headlines in the Daily Fail. The same “celebrity” miseries still hog the grimelight. No matter how wide of the mark they prove to be. And they never own up to being wrong. Apparently there’s a name for this ailment … Cognitive Dissonance.
Let me give you a classic example. In November 2010 a group of “renowned economists,” “high-profile intellectuals” and “business leaders” wrote an open letter to Ben Bernanke, the then Chairman of the US Federal Reserve. He’d just announced a second tranche of Quantitative Easing, pumping liquidity into the US economy. They published their letter in the Wall Street Journal. Their view was that Bernanke’s moves would prove disastrous and “cause runaway inflation, currency debasement and distort financial markets.”
Not going into any mumbo jumbo (as they do), over 8 years later they’ve proved to be spectacularly wrong on every count. So have they conceded they were wrong? Not a chance. In fact those interviewed still believe they were right. No kiddin’. They just explain the fact there’s no inflation when they predicted hyperinflation by shifting the focus on the stockmarket. Apparently the Dow’s rise since March 2009 was artificial. And wouldn’t last according to them. They said that in October 2014. Still wrong.
Two weeks ago I took a phone call from a farmer, a client of ours for 27 years, and heading to his 75th birthday before which he needs to make key decisions. He was worried because we were heading for a “crash” and shouldn’t he go 100% Cash “before it was too late.” Where had he heard this? Turns out he’d been in YouTube and uncovered a rich vein of “experts” predicting a crash. Yet he hadn’t noticed that from September to Christmas Eve stockmarkets had already gone through what “experts” say qualifies as a crash.
So I recommended that the next time he visits YouTube he sticks to Rev I M Jolly or Tommy Cooper and have a laugh instead. Much better for his health. On 21st December a lawyer client (and big pal) whom I’ve known even longer sent an email asking if he should be worried. Nope, I replied. Don’t know if you’ve noticed but since Christmas Eve the Dow Jones Index is up 4000 points. I’d be surprised if you’ve seen that anywhere else.
Since May 2010, TV Channel CNBC has broadcast 25 “Markets In Turmoil” Specials encouraging us to panic. The last 2 were in November and on Christmas Eve. In every case so far after 3, 6, 9 and 12 months the US stockmarket is up, and over 12 months by an average of 22.2% (amazing coincidence…22/2 is my birthday!).
A chart I have above my desk shows the returns of the US S&P 500 Index over 20 years from 1995. Missing only the ten best days over that 20 years halves your return. And missing the best 20 days drops your return by an astonishing 69%. The message couldn’t be clearer. If you want different results from the consensus, don’t listen to the miseries. It can damage your wealth and health. Go watch Rev IM Jolly on YouTube instead.
Oh by the way, despite replenishing my own investment portfolios and more, I still have no intention of retiring. I enjoy annoying the miseries too much. Oh, before I forget - the Dow Jones Index is over 25,000.
And if you come across any long-term Daily Telegraph readers do make sure you let them know.