On the Money

Facts and fiction (sometimes called Statistics)

Alan SteelThis week’s column was going to be about the  Chancellor’s Autumn Statement.  Never mind. What a waste of time that was.  Not that it put off our news channels from wallowing in misery as usual.

A year ago the “expert” miseries dragged out from their academic cloisters rung their hands pouring out statistical theories to support predictions of the UK economy drowning under a sea of increased debt and derisory economic performance.  Wrong, of course, as usual. 

The problem is that nobody reminds these pessimistic soothsayers of their errors. Nor are they accountable when they’re wrong.   Anybody else noticed the UK has been the fastest growing economy amongst the big boys?

Now we’re assured that Brexit will add another umpteen zillion to the public debt.  Funny how it’s our debt, eh?  In June the same “experts” said that  Brexit would see our stock markets plunge.  Is it a coincidence that thousands of investors rushed to sell millions of pounds worth shares and equity funds to pile into “safe” bond, cash and absolute return havens instead ? 

So what’s happened since?  Unsurprisingly, the FTSE total return (reinvested dividends added) is up 8% since Breakfast at Brexit.  Stick to your guns with any one of a dozen Global Income or Growth funds, we recommend, like Fundsmith,  Newton Global Income or even M&G Global Dividend (which was slated a year ago by “experts””,  and you’re up after charges by between 15% and 28% in only five months.

Compare that to zilch returns on cash or the country’s favourite absolute return fund which has actually fallen in price.  No it’s not a good idea to go along with a consensus who follow the headlines. What do successful investors say? Buy on the rumour. Sell on the news. (Not the other way round).

As to debt and deficits they do sound bad, don’t they?  Seems to me we’re programmed to think that. My parents drummed it into me to avoid debt. As did my grannies before them.  But is it bad for stock market investments when there are deficits knocking about?  Let’s face it, that’s what every academic brainbox tells us.  But is this fact or fiction?

I was born in 1947, a first wave baby boomer, part of a generation that 20 odd years later would cause havoc to inflation and interest rates.  Developments which created turmoil in stock and bond markets in the 1970s and 1980s not to mention mortgage and annuity rates.  But that’s another story. 

However, in the US since 1947 there’s been nine periods when fiscal deficits peaked, and another ninr when surpluses peaked.  Given that “economic experts” prefer surpluse you’d assume that the following three year cumulative performance of a stock market index such as the S&P 500 would be far better than following a deficit peak, wouldn’t you?

Wrong.  Statistics suggest one thing, facts show the opposite. In fact, on average over all these cumulative three year periods the S&P 500 Index produced almost four times more return after deficits than after surpluses (35.9% aver compared  to 9.2%).

Statistics, as Morgan Housel of Motley Fool explains, “are just a number. And numbers are as easily manipulated, incomplete and misleading as words are.  But more dangerous than words, because numbers are associated with maths and maths are associated with fact.” 

And he went on to give examples. Such as the Millennial Generation (19 to 35 year olds) live from payday to payday. Statistic. Do you know something? No generation ever saves money in their 20s. Fact. Mine didn’t either.

It’s been reported that the US Government debt surged to an all-time high of $19 Trillion almost 200 times where it was at the end of World War Two. That’s a statistic. Actually it’s 105% of US GDP, far below the percentage in 1945. Fact. 

Incidentally, following the Autumn Statement we were told by the media that we’re heading to a debt level of 90% of UK GDP. Looks like the US is worse than us statistically. Or is that a fact?

I’ll tell what’s definitely more of a fact than a statistic. My 43 years since I became an IFA has shown me the best times to invest in equities are when economic and market “experts” are at their most pessimistic about prospects.  

Even now after a powerful secular Bull Market they didn’t see coming seven and a half years ago sentiment is still statistically pessimistic. And that’s a fact.

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.


This is a regular column submitted via the DBdirect service. For details click here. 




Leave a Reply

Your email address will not be published. Required fields are marked as *

This site uses Akismet to reduce spam. Learn how your comment data is processed.