Master Investor was given permission to re-publish this missive from Alan Steel of Alan Steel Asset Management. Alan will be speaking at Master Investor 2016 in what (judging from this article) promises to be a standout performance. Click HERE to book your complimentary free tickets using the discount code “MI2016”.
“Under Pressure? Pressure pushing down on me… pushing down on you.” So just when you thought things couldn’t get any worse, given the state of world stockmarkets last week, on Monday David Bowie died, and on Tuesday some idiot at RBS tells you to sell everything and stick it in Government Bonds and Cash.
The pressure’s building alright when I get emails from as far away as Barcelona and Bridge of Weir from long standing clients concerned about these prophets of doom. Nothing ch ch changes I guess. But perfectly understandable, when some idiot shouts “sell everything”. How naïve and irresponsible can he be?
RBS’s Credit chief is the latest in an increase of high profile “forecasters” predicting an oncoming crisis as bad as 2008. So he hasn’t seen his indicators this bad since then? Kept his mouth shut then eh? Cost us all a cool £45 billion thank you very much. Before reaching for the panic button do remember researcher Philip Tetlock who studied predictions from 284 “experts” and found you’d be better tossing a coin.
The media favourites claiming they predicted the 2008 financial crisis had been peddling gloom year after year. Chances were they’d be right one day. Well a stopped watch is right twice a day but still utterly useless.
You may recall my granny McKay was my fount of all knowledge. She always said there’s two sides to every story. But all we hear right now is one side, the negatives… China’s a basket case, Oil’s too cheap (rather than too dear), there’s too much debt about and too much money pushing shares too high… work that one out. Aye, “Planet Earth is blue… and there’s nothing we can do”. Oh Really.
Now, I know somebody who accurately predicted the 2008 crisis, Joe Kalish of Ned Davis Research. He spelt it out in no uncertain terms. Sadly few listened. Headline writers at the time were obsessed with the joys of leveraged property deals.
Joe’s still with Ned Davis Research. So what’s he saying to it these days? He reminds us stockmarkets fall by double digits in percentage terms at least once on average every two years. So it’s natural not unusual. But pull backs have been thin on the ground these last six years so one was overdue. Here’s something else that’s interesting. On an NDR webinar on Monday they reminded us that in 2007 they downgraded recommended Equity exposure to only 40%, whereas right now they still recommend 70% exposure, almost their highest level.
And can I remind you we still have an emphasis on Caution/Value Income in typical portfolios. As a result, over the last 12 months while the FTSE Total Return is down 6.25% our biggest holding for clients, an income fund is up 5.17% on the same basis.
What is it about Januaries? In previous ones when stockmarkets go down we’re assured by “experts” the end is nigh. Hasn’t happened yet.
Somebody asked me last week wasn’t I relieved I wasn’t starting a business now as opposed to “more easy times” in 1975. Let me tell you about January ’75 when we were planning to start ASAM.
The FT All Share Index had fallen 70% from October 1973. The Oil price had quadrupled in 18 months. UK inflation was 24%pa. Mortgages were thin on the ground, assuming of course you could afford the 12% going rate. We were in a double dip recession. Remember them?
Not a good time then, with a wife not working and a baby a few months old, to be looking to open a new IFA business. Was the top selling album of the year trying to tell me something? Paul Simon’s “Still Crazy After All These Years”. Some folks think I still am. The top film? “One Flew Over the Cuckoo’s Nest”. Set in a lunatic asylum it was. There were critics who reckoned I’d escaped from one.
Bad year then by the looks of it. Guess who else started a business that year. Bill Gates registered Microsoft. Steve Jobs was about to form Apple. Motorola lodged the first patent for a mobile phone. But on the telly “wise men” like Jim Slater went much further than today’s RBS miserable advice. Sell your investments and buy beans and bicycles he said. Don’t ask why.
So was January 1975 a bad time to sit in Cash? You bet. Apple last time I looked was worth $550 Billion and Microsoft $420 Billion. Should have stuck my original savings of £3000 in them.
Seriously though, what should you do? For starters please realise great investments do not go up in a straight line. It’s natural to have pullbacks. But in our fast change investment world today it makes sense to build foundations of Caution and Value and add carefully chosen funds who seek and hold GARP shares… Growth At Reasonable Price.
Frankly, that’s more than a sound long term investment strategy. Some of us would say it was ‘Hunky Dory’.
Alan Steel