Well I don’t know why I watched that tonight
I’d a feeling that something ain’t right
I’m so scared that I’ll lose all my shares
And I’m wondering how to shake off the bears
Clowns to the left of me, Jokers to the right
Here I am, Stuck in the Middle with the EU”
(with apologies to Gerry Rafferty)
According to the “experts” the baw’s burst for the global economy. Now I realise they’ve been saying that every few weeks for an eternity, but “this time it’s different”, they say, apparently oblivious to the fact that those four words (five, if we ignore the apostrophe) are the most dangerous words in investment.
It’s true that the last few weeks haven’t been much fun for stock market investors. And you can be sure that as soon as the red ink is splattered over share prices the usual culprits are let loose on telly letting us know how they were right all along in their predictions of gloom. Adding for good measure that things are going to get a lot worse.
Over the years you may well have heard of Albert Edwards, Marc Faber, Nouriel Roubini and Paul Krugman, just a few of the celebrity pessimists who regularly predict that the end is nigh.
So it’s reassuring to know that there are others out there following along the path set out in the sixteenth century by Nostradamus. You may recall he apparently predicted the rise of Hitler. But like all his so-called predictions this was only “noticed” in hindsight by some academics who said nothing about his bunker fate.
So it’s a change I suppose to discover another of that ilk, David Stockman, who comes highly rated as an experienced bogey man who once served as a President Ronald Reagan aide. His comments on CNBC this month were picked up by nervous investors from Hawick to Hong Kong. He said….“a 40% drop in the stock market will take out the bull market”, though he didn’t explain what he meant by “stock market”, a handy description used by commentators and experts to confuse the investing public.
Did you know that there are now 3.7 million “market indices” around, far far more than there are publicly quoted companies? Nuts, or what?
And these indices are man-made figments of imagination, typically put together in a way that defies common sense. Being weighted in favour of the biggest businesses in terms of how attractive their shares are to the investor herd, rather than how effective they are in terms of growing profits and dividends for their employees and shareholders.
Anyway, what Stockman said wasn’t put into context. For example, that’s the thirty-fourth such prediction of doom he’s made since October 2010 when he recommended investors follow his example of investing in gold, cash and tins of baked beans. Maybe he expected a following wind?
In 2016 he asked what optimists were smoking because “if they didn’t see then that the global economy was crashing they must be delirious”. Dear, oh dear. Pot, kettle?
Seems to me that a drawdown in these major capital weighted indices was long overdue given we’ve been in a largely positive environment for share prices since March 2009. And especially so, given 2017 was so unusually benign for stock markets. You may have forgotten how many drawdowns (or corrections) there’s been over the last nine years. I certainly did.
Taking the US S&P 500 Index as an example there’s been at least 62 pullbacks of 5% or more, 22 of which have followed “All Time Highs”. Who remembers the 16% fall in 2010, the 20% fall in 2011 never mind the 14% drop in early 2016? And who’s glad they stuck to the long game and held on despite the gloomy predictions by “experts”?
Presumably the pessimists are happy that stock markets have shed some of the gains that they themselves have missed out on by sitting in deposits all this time. And, by the way, there’s lots of dosh out there earning sod all, at least $14 trillion plus in the US, and in the UK more lies in Cash ISAs than is invested in stock market ISAS, despite the pathetic returns from deposits for the last decade.
Somebody once said that the stock market is the only “thing” people run away from when they can buy at significant discounts. Somebody else said if you only focus on the short term you’ll never reap the rewards of patience. And Warren Buffett said you should buy assets when it hurts the most. For those investors who fancy playing the long game it sure looks promising right now. But I’ve only been in this industry for 45 years. What do I know?