If you read my previous article you’ll recall that I referred to the investor gloom and panic that swept the world, creating record dumping of equity funds, as millions of “savers” blindly rushed to “safety” in the form of bonds, cash and various esoteric sectors which change their names to protect their absolutely duff returns.
I think it was Walmart’s Sam Walton who once said that “the most expensive investing mistake in the world is to be a pessimist, and it’s a common one”. Can’t remember who said “always borrow money from a pessimist because they won’t expect to get it back”. But both statements do come in handy at times like this.
By Christmas Eve, stock markets all over the place were …er….all over the place. Down heavily in fact, especially in the Far East (that’s way beyond Fife, by the way) and over in the US where the main indices fell almost 20% almost touching official Bear Market territory, which presumably brought a rare festive grin to the faces of pessimists. And to put the icing on their Christmas cakes the UK stockmarket took a bit of a battering, too. Seems to me since 2000 it’s never been the same since it got in the ring with the Dotcom boom/bust.
By the time late January arrived some growth funds had bounced back as I reported at the time, by between 6% and 10%, but that didn’t change the mood of some pessimists who, apart from enjoying the anticipation of yet another “Beast from the East” arriving (according to weather dismalists), also took great delight in informing me a) I didn’t know what I was talking about, b) I should be locked up with the key thrown away and c) “just you wait”!
Well the Beast from the East arrived all right, but lost its bearings somewhat, being only a few thousand miles out terrorising the West/Central states of the US instead. And I’m still “waiting” over five weeks later, having watched the US stockmarket bounce 20% up since Christmas despite the awful weather out there and the continued ramblings of The Donald, not to mention Brexit. (I thought I told you not to mention Brexit! Ed)
Recently, in clearing up some of my old research files I came across a Daily Telegraph article from late January three years ago. Under a heading “Time To Sell Everything” it reminded readers that “an excited analyst at the Royal Bank of Scotland told clients to prepare for a ‘cataclysmic year’ when stockmarkets could fall 20%” . There should be a law against describing analysts as exciting. Always remember the first four letters in their job title!
It was also reported that arch pessimist Albert Edwards of Societe Generale went even further and said that the real bottom of the 2007/8 financial crisis would see another 75% slump from there.
Bad news sells. World renowned Elliot Wave “expert” Robert Prechter in October 2012 can still be viewed on YouTube being interviewed by another cheery pessimist predicting that “a fifth wave of gloom would take the stockmarkets down to bargain basement prices over the following five years. Er …that would’ve been October 2017 folks. Hope you’re not still waiting for the bargains.
Meanwhile the realists at Ned Davis Research feel that the big bounce up since Christmas can run out of steam soon given the slowdown in global growth, but they don’t see a recession on the horizon, so on balance think this year will be kind to optimists. That’s good to know considering it was reported last week that in 2016 75% of economists predicted a recession by 2018, which didn’t happen, and now 77% predict one by 2021. Which by my reckoning could be the twelfth of never.
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.