ON THE MONEY: Don’t be afraid to take a chance when others are running for the hills, says ALAN STEEL
“When you say to yourself -‘what if?’ it’s typically short for ‘what if it goes wrong?’ which in turn means ‘it will go wrong’. And that’s the most common reason why so many never take chances in life and make negative decisions that hold them back from success” – Brian Tracy
“I watched a school performance of ‘Fiddler on the Roof’ and it struck me that it’s what life is all about- either playing the music or trying not to fall off the roof. Play the music. Take chances. Don’t say ‘what if?’ Instead, say to yourself ‘why not?’ ” – Larry Wilson
Last month I mentioned my old aunt in Canada who, despite her failing eyesight, spends most of her time glued to her telly watching the rolling ‘News’ programmes which spew out bad news 24/7. And she swallows it all, hook line and sinker. Regular readers of my thoughts may remember that about 6 weeks ago she was worried about the world economy collapsing because of the Dow Jones Index which she said was plummeting. Well that was news to me, but then I don’t watch the Bad News on telly. I just study the real facts that are mysteriously omitted from the headlines and the following copy.
When I checked I discovered that there had indeed been a fall in the Index . It had ‘crashed’ by 0.4% over three days and stood at 34,014. Try to remember that number. Now for those of us who aren’t good at percentages, 0.4% is the modern day equivalent of 1 divided by 250, and as I’ve said before, if your fish supper was smaller by that amount would you notice any difference? Especially if an extra slager of broon sauce had been utilised to cover the evidence of any shortfall.
Last Saturday evening on returning from another short foreign holiday (this time to darkest Perthshire) and having survived driving there with locals apparently having the right of way on the wrong side of the road, I phoned my old auntie over in BC once again to see how she was coping with her first Covid jab and to hear about her escapades at her local Mall now that she was released from 15 months of captivity. First thing she asked though was ‘how are you coping with that crash in the Dow Jones?’ She seems to be as obsessed nowadays with this obscure market measurement as talking heads on the telly.
Now I had been vaguely aware on our four night break in Los Auchterardae of my wife swiping her iPhone and mentioning that ‘the markets seem to be in trouble’, but I’ve learned over the years that if you can’t do anything to change ‘things’ and are close to a glass of red, why worry needlessly? So I didn’t bother checking until we got back on Friday the 23rd.
Before opening up my values on my laptop I read the latest comment that morning from a US market veteran who I subscribe to, and he mentioned that the Dow was down from its previous high by 0.039%. That’s a smidgeon away from about 1 divided by 2500. It stood at 35,061 which unless I’m mistaken is over 1000 points higher than the previous crisis level mentioned only a few weeks earlier by my worried auntie. I hadn’t done so well by the way. My portfolio was down by 0.05%. Looking on the bright side, 99.95% of it was still there. Even better, it’s now higher than ever. Happy days.
So where did the talking heads on the telly get the idea that a crash was on the cards? Well, Morgan Stanley who should know what’s what with a reported $1.5 trillion assets under management, recently got headline billing for its prediction of a 20% correction (technical word for a crash) claiming that all three of its predictive ‘tools’ confirmed it. Just shows you how wrong the big boys can be, eh? Be interesting to know though how many of the firm’s clients panic-sold on the basis of ‘what if?’
Sticking with the Dow Jones for a moment, since 1918 there have been 91 declines of least 10%. In other words it has experienced a correction every 14 months, on average. Correction is what insiders call a fall and sometimes (when the fall hits 20% or more) a crash. By the way there’s not been a 10% or greater decline since the pandemic lows 17 months ago.
Thanks to the typical ‘What if?’ reaction to perceived bad news it could well explain why so many savers sell at the wrong time, if indeed they had bought any equity funds at all. You’d be amazed how quickly any confidence dissipates if you insist on listening to the shock/horror stuff churned out day after day. In the US there’s a ‘Fear and Greed Indicator’ which measures investor optimism and pessimism weekly. On 30 June, 49% were optimistic, 22% were pessimistic and the rest weren’t sure either way.
Only three weeks later the optimists fell by 38% and the pessimists expanded by a similar percentage while the neutrals jumped by a third. Interestingly, at the bottom of the markets in March 2020 there were no optimists at all. 100% were either slitting their wrists or were simply bewildered. This is an excellent contrarian signal by the way. Below 25% is a sure-fire Buy signal. Above 75% and it’s a good idea to consider a sharp exit. March 2020’s ‘Zero optimists’ reading turned out (as I said at the time) to be the best Buy signal in a long time. Ya beauty.
But for the bulk of savers who would prefer a decent return instead of sitting in deposits earning next to zilch, and don’t fancy the ups and downs of stock markets, there are answers available that have a decent record of protecting your wealth in real terms and helping you sleep at night. Academic research shows that many private investors emotionally can’t handle the apparent rollercoaster of share prices. Capital preservation is their priority. Investment doesn’t have to be black and white as my mum used to think it was. There are funds out there designed to avoid the drawdowns/corrections of stock markets.
A long term favourite of mine, the fund equivalent of a goalkeeper, has just celebrated its 20th Anniversary with the same guy between the sticks. He in turn though uses a tennis analogy to describe his process: ‘you win not from hitting spectacular winners but by keeping the ball in play and making your opponent make one bad shot too many’. This steady eddy wins by being boring. Over the last 20 years, despite the cautious approach, and focus on downside protection the fund has outperformed the FTSE All-Share Index Total Return by over 65% and with shallow drawdowns too.
It’s really a bit like playing the music AND trying not to fall off the roof. I say ‘why not?’ to that.
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.