Like most investment advisers and managers I have been consistently bullish in peddling my strategy....
Like most investment advisers and managers I have been consistently bullish in peddling my strategy. Like some, I also have a good track record. However, like many, I now sound like a broken record. So how should stale bulls react and how should clients react to them, as bear markets breed so many of us?
As it happens, this particular stale bull is a believer in unbalanced top-down portfolio management whose default position is to be fully invested in some kind of equities somewhere in the world - but not everywhere.
Only in the 1972-74 bear market did I go 100% liquid, and that was worth it because markets halved and the UK quartered. In other bear markets I would typically go partially liquid for part of the time, but with hindsight it was never enough. For the record, over the past decade this has generated twice the average gains in bull markets but only average losses in bear markets. In general I have been good at avoiding bursting bubbles and bad at avoiding collateral damage.
This time round I made two mistakes. First, I believed in decoupling. It happened but the opposite way to what I expected. Asian savers have performed worse than Anglo-Saxon spendthrifts. Second, I thought this bear market would end in a selling climax - but did not consider that there could be a record of four cascading selling climaxes.
Others will have different confessions. The details don't matter but the principle does because one can't get out of a mess before one knows how one first got into it. That applies both to investment professionals and their advisers.
Essentially there are two alternatives. Either one decides that the strategy no longer works, and replaces it with another one that does work, or one checks one's analysis and perseveres if one finds no fundamental error in the belief that investment is an odds-based activity, in which the odds favour that strategy working again in the future.
The problem with the first route is that investment suffers the subject/object problem, namely that people as analysts observe the behaviour of other people as investors, but then influence the future of behaviour of investors because the analysts are themselves investors. The incentives to learn are particularly high when as much money is at stake as in the stockmarket.
That is why no investment strategy can work all the time, because if it did, it would be widely copied, which would arbitrage the gains away. Those who take this route risk becoming serial losers, switching from one fashion to another just as each is about to go out of fashion.
Taking the other route, on checking my calculations, I find that Asia is still growing fast, if not quite as fast as before and that, if this bear market has already produced a record number of selling climaxes, the odds strongly suggest that it is over.
Such confessions matter for clients, because the successful client does not trust his adviser - he understands him. Therefore the message for stale bulls is don't just do something, stand there!
- Nick Dewhirst is CEO of www.investors-routemap.co.uk.
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