Helping you to make it thro the night

“The object of life is not to be on the side of the majority, but to escape finding oneself in the ranks of the insane”
- Marcus Aurelius, Roman Emperor and philosopher

“The pessimist complains about the wind. The optimist expects it to change. The realist adjusts the sails”
- William Arthur Ward US motivational writer (died March 1994)

“Always think above the clouds. Try hard not to get lost in the fog. See the larger horizon beyond- which is set to be vastly more beneficial than the headlines lead one to believe”
- Mike Williams, Investor/writer

“Time discovers truth”
- Lucius Annaeus Seneca, Roman philosopher

“By the time you make ends meet they move the ends”
- Grannie McKay, part-time/self-taught philosopher

Well here we are celebrating our 1st Coronaversary.  Yes folks, a year ago (23rd of March) world stock markets bottomed after an ‘Aw Naw!’ sudden scary crash when 24/7 news of a Covid19 pandemic pummelled markets.  Here’s what Financial Times experts helpfully wrote only two days later - “Money market funds saw record inflows as risk assets collapsed.”  And being helpful as usual to those of us of a nervous disposition they continued -“Cash is king.  As the Covid19 crisis worsened, investors shifted a record amount of assets to cash in March”

Just to rub it in they added “The macro and earnings news flow will indeed likely worsen before getting better.” If that didn’t get your blood pressure up, how about this chaser?  “If economic lockdown lasts for 6 months the S&P500 (US Index) will decline to 1600.”  Putting that into perspective, the Index had already fallen 34% in only one month, and had it fallen to 1600 that would’ve been a further 28% collapse.  No wonder so many panicked.  Well if it makes you feel better even I felt the extreme pain as I watched my ‘uncomfortable diversification’ portfolio fall to an uncomfortable level.  Ouch.

However, ever the optimist, back in Contrariansville here’s the final paragraph in my LfL last March- “Last word goes to legendary US fund manager Bill Miller, a man with quite a record of success over many years.  This is what he said on Wednesday… there have been four great buying opportunities in my adult lifetime.  The first was in 1974, the second in 1982, the third was in 1987 and the fourth was in 2008/9.  This is the fifth one.”

Thank goodness almost all of you joined me in turning off Bad News at Ten and Constantly Negative News channels.  And boy have we been richly rewarded.  And it helped you sleep at night which is the key part of our job.  Despite headlines I squinted at last night spouting more gloom, our ‘Football Team’ approach performed well.  “The boys done good” as football managers would say. Player of the year award for the best performance in our ‘first team’ goes to a UK Value manager slated by the armchair critics but he’s now up the last 12 months over 90%.  Yes Really!

Do you also remember the insanely negative hysteria in March 2009 after the world was rocked by the Great Financial Crisis?  Well you were also richly rewarded by ignoring all the so-called ‘legendary’ doomsayers back then too.  Here’s the New York Times headline from March 1st 2009- “Steep Market Drops Highlight Despair Over Rescue Efforts.”  And taken from the first paragraph - “Fears that the world’s economies are even weaker than had been thought ricocheted around the globe on Monday as investors from Hong Kong to New York bailed out of stocks.”

“It’s pretty despondent everywhere” moaned a sombre strategist for State Street Global Markets (probably also an agent for indigestion tablets) ignoring the optimism epicentre in Linlithgow. And to add a soupcon of credence as to why you were supposed to abandon all hope even Warren Buffett was on a downer quoted in the article thus- “the economy will be in a shambles throughout 2009 and for that matter probably well beyond..  Fortunately I preferred paying more attention to Jimmy Buffett with his upbeat message - “It’s 5 o’clock somewhere.”  I’ll drink to that.  Cheers.

Those of you who have been clients a long time may recall that on the 23rd of February 2009 I was the only advisor the Daily Telegraph could find brave enough to write positively about stock markets.  I wrote my “Beware the Prophets of Doom- the Numbers Don’t Stack Up.”  In it I mentioned the conversation I’d had with a former neighbour at our local opticians who when I said I expected an imminent stock market recovery, informed me bluntly that it was more than my eyes that needed testing.  Sadly that was the reaction of many short-sighted angry Telegraph readers too.  Guess when the new Bull Market started?  The 6th of March!  I bet he and they wished they’d ignored the usual bunch of perennial pessimists 

Sadly, for years and years too many of us listen to the wrong people. Professor Bobby Duffy (of Ipsos MORI) explains in his book ‘The Perils of Perception’ that pessimists sound more cerebral and believable than optimists who are seen to be shallow and probably always trying to sell you something.  He reckons that the way our brains are wired probably explains why we’ve ended up with a media we deserve- constantly negative and sensationalist. I recommend this book, subtitled ‘Why We’re Wrong about Nearly Everything.’  But if you’d like a wee taster first, do watch his recent presentation on YouTube to scientists in Ireland. (it’s about 40 mins long). 

If you haven’t read ‘Factfulness’ by the late Hans Rosling I recommend it too.  Both books study the differences between what we believe to be true and what is actually true, thanks mainly to listening to a media whose business model is based on catching our attention.  Many apparently believe that things have got worse over the years, whereas the opposite is true. Before you read the books ask yourself if you would be able see the Great Wall of China from Outer Space with the naked eye, and how many years can you expect to live on average once you’ve reached 65?  You may be surprised at the answers.

While researching for LfL I found an article by a ‘Science Correspondent’ written on the 5th of December 2000 in the Daily Mail which underlines how wrong experts have been.  The headline was “Internet May Be a Passing Fad As Millions Give Up On It”  ‘Experts’ from ‘The Virtual Society’ reported - “Predictions that the Internet would revolutionise the way society works have proved wildly inaccurate. Many teenagers are using the Internet less now than previously-in Britain alone there could be more than two million people who regularly used it but had now given up, and the future of online shopping is limited.” Incidentally the project was sponsored by the Economic and Social Research Council, gathering together research by 25 Universities across Europe and the US.  And we still believe others like them??

Here’s how wrong they were- 20 years later 15 billion emails are sent every day around the world and half of them are spam which would delight Grannie McKay.  She loved spam.  Looks like the Virtual Society experts got it badly wrong with virtually all their predictions. In 2000 within the top ten of the US’s biggest companies (measured by market cap) sat Microsoft ($231 Billion) in 7th place.  No Apple or Amazon.  Today it’s Apple ($2145B), Microsoft ($1787B) and Amazon ($1584B).  So the Internet hasn’t worked then eh?  By the way you won’t be surprised to learn that the Daily Mail science correspondent went on to be head of communications for HM Treasury, then help ease through Brexit before getting a real job - in a PR practice that promptly went bust.  Karma.

For more perspective did you know that you’d have to add up the values of the biggest 55 FTSE companies to equal that of Apple?  Add Microsoft and they’re bigger than the whole UK Index.  Gulp.  The biggest company in the FTSE100 is Unilever which would be only the 29th biggest in the US index. Only 7 FTSE100 companies are valued at over $100billon as opposed to 79 in the US, mainly benefitting from an Internet the Virtual Society experts said was a passing fad.

You regularly see articles comparing investment performance over the years against this index or that index. But how can you compare against past indices that are completely different from todays?  From the S&P500 index in 2000 in the top 10 by size, only Microsoft remains today.  Numero uno in 2000 was General Electric, now only 67th, having shrunk 76% by value. That’s some disruption. Over here in 2000 do you remember that Vodafone was the top dog? Look at it now down in 17th place with its share price down 90% since its glory days.

Comparisons are fraught in life not just in investment circles. I remember the alleged conversation between two male investment analysts on a Monday morning in The City. “How’s the wife?” asked one.  “Compared to what?” replied the other.  That’s analysts for you.  And it reminds me of Tommy Gemmell who scored in the 1967 European Cup Final when Celtic were the first British club to win it.  Following the 2003 European Cup-Winners’ Cup final when Celtic were beaten 3-2 by Porto in Seville, he was asked which Celtic team would win if they could play each other.  Tommy admitted that the 2003 Celtic team probably would nick a victory, adding “You have to bear in mind though that we’re all in our Sixties now.”

And what about supposed causation or correlation. How often do you hear that an ‘X points fall in Y Index’ (or rise, though that tends to be ignored because it’s good news) is down to this or that.  Always only one reason … ‘Oil price did this or that. Or inflation worries or Biden said or didn’t say this or that.’  Trump’s gone so they can’t blame him anymore.  If you’d like some perspective on this and a laugh at the same time, do read ‘Spurious Correlations’ by Tyler Vigen.  Here’s a couple for starters… “There’s a 94.7% correlation between the ‘Per Capita Consumption of Cheese’ and the ‘Number of People who died by Becoming Entangled in their Bedsheets’ (Don’t ask how).  And there’s a 99.26% correlation between ‘The Divorce Rate in Maine’ and the ‘Per Capita Consumption of Margarine in the US.’  Hope it doesn’t spread over here.

Now a key new investment term on the back of all these Covid concerns to explain recent investment successes or failures is Disruption.  As mentioned in last month’s LfL the last 12 months have turbo-charged disruptive change.  But I wonder how much disruption there’s been over the years? I saw a chart of the Dow Jones Index performance since 1916 which is mind-blowing.  Think of the problems the world has faced since then - World Wars, Gulf Wars, Cold Wars, 1918 Spanish Flu pandemic, various worrying epidemics, economic disruptions, 9/11, Dotcom bust, The Wall Street Crash, The Great Depression, Great Financial Crisis, Inflation, Covid etc. Feel free to add more.  There are plenty of others.

It’s hardly surprising then to see that the Dow made new All-Time Highs less than 5% of all days.  So you could say it’s been under-water 95% of the time.  And yet it’s up by a remarkable 25,250%. Wow!  Hope for us yet then?  And to better understand why, another book worth reading is Steven Pinker’s ‘Enlightenment Now.’  Fascinating!   

As to your investment strategy from now, despite the continued media gloom my advice is to stick to quality whatever the passing fads and bubbles and the constant pessimism.  Patience is a great tactic as well as a virtue because as Seneca said some 2000 years ago, time always discovers the truth. It also helps you sleep at night.  Finally if you fancy avoiding a £5000 foreign- holiday fine and are thinking of coming to Scotland instead, my final book suggestion is to get hold of Peter Irvine’s fabulous guide ‘Scotland the Best’.  Linlithgow Palace is included as ‘Simply the Best.  As we strive to be.