On the Money
Whatever the EU vote, we’ll just get on with it
Last week I quoted Ros Altmann rubbishing star fund manager Neil Woodford’s view that a Brexit would make little difference to the UK economy’s prospects. George Osborne has now entered the battle of hyperbole.
According to the Chancellor “every credible independent voice” backs the view that the UK would suffer slings and arrows of outrageous fortune if Brexit supporters win the day. Did you notice his recent predictions? Four and a half billion pounds to be wiped off Scotland’s GDP and 43,000 jobs lost if we vote to leave the EU.
This is from a Chancellor who didn’t see the oil crisis coming, nor the loss already of 84,000 North Sea jobs. Not that his predecessors did much better.
Who didn’t see the 2008 Great Financial Crisis coming ? And before that who sold Gold around $250 an ounce on “expert advice” just before the Gold bull market pushed the price up to $1900?
But the winner of this week’s bonkers Armageddon prediction has to be the boss of Unilever who warns us that if we leave the EU the price of ice cream will rocket (even on a wafer thin majority, I hear).
Luke Johnson, successful career entrepreneur, said last week: “This referendum is a classic case of how difficult it can be to dissent from the conventional view” and goes on to add: “In my opinion unquestioning compliance with widely accepted views about investment and business is both lazy and perversely hazardous.”
In Ned Davis’s The Triumph of Contrarian Investing, first published in 2004, he said if you want to build real wealth by investing, simply wait for majority opinion to reach extreme levels and then take the opposite position. Simple, eh? Not in practice, it isn’t. Not with our emotionally charged brains.
What he’s found over the years is that at potential turning points contrary sentiment indicators are virtually always right. What’s that in old money? Well, in the US one such contrarian indicator which has flashed over 80 extreme optimism and pessimism signals over the last ten years has been correct in all but one occasion. It’s nothing new.
Davis also refers to many other wrong “expert” predictions, including the twice-yearly Wall Street expert Forecasting Survey on Long term Interest Rates.
Every six months experts are asked to predict the direction of rates over the following six months. Between January 1982 and end 2002 there were 42 predictions, only 12 of which were correct. Only 12! So running with the crowd, including expert consensus, just doesn’t work in practice though “they” tell you it does in theory.
Prof Yuval Harari, in Sapiens, A Brief History of Humankind, said “It is an iron rule of history that what looks inevitable in hindsight was far from obvious at the time”.
And something can only be obvious if the vast majority believe it to be the case. In 2008 in the US almost $230 billion was pulled by investors from stock market funds as the vast majority believed dire financial predictions from widely quoted economic “experts”. Obviously the wrong thing to do….. again.
In 2010 a group of renowned economists, high profile intellectuals and business leaders wrote an open letter to the US Federal Reserve declaring that quantitative easing would be disastrous, create high-inflation, weaken the US dollar, “distort financial markets”, and wouldn’t create jobs. All totally wrong.
But have the “experts” conceded that? Nope, not one. And although given the chance to admit their significant errors they refuse to admit they got it wrong. Same in investment over the past 16 years. Obsessed followers of UK Index Trackers can’t see the obvious underperformance against well managed actives.
Meanwhile, back in the real world, bookies still think it’ll be a win in the referendum for the conformists. So if you’re an investor worried about the outcome and you’re still fully invested in decent funds take a deep breath and stay the course.
Over every 20 year period since 1900 the lesson is clear ….stick with equities. The last three year flow, especially recently in the direction of deposits, Bonds and perceived “safe” alternatives doesn’t have history on its side.
Mark Twain, late in life said that over his lifetime he’d seen many worries of which none had actually happened. Whatever happens after the 23rd we’ll all just get on with it. So why not take Paul Anka’s advice in the song made famous by Sinatra that opened this piece…. And do it your way.
Alan Steel is chairman of Alan Steel Asset Management
Alan Steel Asset Management is regulated by the Financial Conduct Authority. This article contains the personal views of Alan Steel and should not be construed as advice. Do check your individual circumstances with your advisers.
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