On the Money

Investors should follow the cycle, not the herd

Alan SteelThe Greek philosopher Heraclitus once wrote “What was scattered, gathers and what was gathered, blows away”.  So life just goes on.  The world turns, seasons change…. all four of them, unless of course you’re in Scotland where there are only two Seasons: Winter and next Winter. Tides go out and come back in again like clockwork, and night follows day.  All of this goes in cycles.  Round and round they go.

As human beings you’d think we’d be wired by now to be comfortable with cycles given our longevity on this planet.   It seems not, for evidence clearly shows some cycles are harder to spot.  Especially those driving investors towards bad decisions.  Sadly it’s not difficult to see why. 

I know I sound like a broken record, but combining our reptilian brains, designed to protect us from the slings and arrows of outrageous fortune thousands of years ago when our lives were precarious, to a world of constant bad news/shock horror headlines is an accident waiting to keep happening.

Thankfully, there are simple rules of thumb to help spot cyclical signs of warning or opportunity. Take “Brexit fears”, for  example.  Once again the investing herd fell for it. Everyone from the now ex Prime Minister, and his ex “economic and pensions guru” Ros Altmann, followed  by innumerable academic miseries,  were obviously speed reading scripts from Chicken Licken. 

Disaster loomed, they confidently predicted.  In a national newspaper less than six weeks ago LadyAltmann rubbished long term star fund manager Neil Woodford’s view that in or out of Euroland would make little if any difference to the prospects for well run UK and global businesses. Most listeners appear to have ignored the views of a successful fund manager who has brought financial freedom to many investors and instead listened to her and the ever -rowing horde of miseries. 

Our Lizard brains a real handicap these days. Breaking News banners across our tellies every five minutes full of woe do a grand job breaking our spirits. Panic fills the airwaves. Shares are dumped faster than a game of pass the parcel. But have they seen the stock market since running away?

A cycle you should look out for is this…when an asset class is popular with the masses and covered extensively by personal finance pages, it’s a sign for a Fast exit.  Last year money was pouring into property funds, UK Index Trackers and Absolute Return funds….. safe bets and /or price driven.

Now look at the mess. Property funds locked up, Trackers returning under 2% over the last 12 months, and don’t dare look at what’s happened to your Absoute Return boffin-run mumbo jumbo stuff.

Meanwhile, well run contrarian defensive and aggressive funds managed by folks who’ve had their reptilian panic buttons surgically removed coped admirably by simply ignoring the noise.

Think about it …what’s the objective of bad news headlines? It is to attract your attention and sell advertising? Or to help you make objective, calm decisions about your family’s financial future?

Let me tell you a secret cycle with a sure fire Buy/Sell signal.  We have a client who always sells all his investments days before the stock market bottoms. Over the last six months his money has been sitting in deposits earning zilch.

He says he’ll only reinvest “when it’s better”. For the uninitiated that translates as “when it’s higher than it was when I sold”. Then he buys back just before another fall.  I’ll let you know when he calls us. 

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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