Chequers checkmate 

So, Theresa May's masterplan has left the leaders of the EU underwhelmed.  So much for all of those optimistic hints of rapprochement, consensus and general bonhomie being touted by media pundits over the last few weeks.  Donald Tusk was grimly triumphant when delivering the negative verdict, and followed that up with a tweet involving cake without the cherries, as a very public piece of insolence, directed towards the British politicians.  Of course, it all may just be a kind of brinkmanship that these politicians feel they just have to play, in order to earn their eye-watering emoluments from Brussels, and behind the scenes all is sweetness and light, with a clear roadmap already agreed between the parties.  It is improbable that anything we are being told even closely resembles the real facts.

Equally well, it is entirely possible that we pay far too much attention to what the media pundits are reporting.  I have heard from several different sources the view that, back in 2008, Robert Peston was single-handedly responsible for wiping more off stockmarket valuations than the combination of events that he was reporting so luridly on.  That's possibly an overstatement of the man's influence, but it is helpful to bear in mind the obvious truth that the media's primary commitments are to selling papers or boosting viewing figures - whereas our role focuses on preserving our clients' wealth as far as that is something that we can control or influence.

Or to put it another way, I am not aware of a class action launched in response to Robert Peston's apocalyptic pronouncements, whereas I am more generally aware of the inundation of the FOS with a tidal wave of complaints relating to every possible variant of perceived grievance, real or imaginary.  Our own behaviours, as Advisers, matter enormously:  it is easy to convey the wrong impressions to nervous clients, who have been watching the same authoritative claptrap on the BBC, and feel inclined to 'dash for cash' and 'wait it out'.  When investors involve themselves in these kinds of stampede for the exit, somebody is about to make a huge amount of money - and you can bet your bottom dollar that it's not going to be those clients.

Occasionally, one encounters advisers who feel able to offer advice on market-timing.  Thankfully, they are rare individuals, as the capacity to offer that kind of advice requires the kind of undiluted self-confidence that is not the possession of many of us.  In case any ValidPath Member feels tempted in this direction, here are a few well-chosen quotations:

"Market Timing is a wicked idea.  Don't try it - ever."  (Charles D. Ellis, author of Winning the Loser's Game)

"If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what's going to happen to the stockmarket." (Benjamin Graham, in Security Analysis, 1934)

"...most stock pickers and market-timers should go out of business - take up plumbing, teach Greek..." (Paul A. Samuelson, Nobel Laureate, The Journal of Portfolio Management, Autumn 1974, p17-19)

"Hulbert's conclusion:  None of the newsletter timers beat the market (over a ten year period).  The average return was 11.06%.  During the same period, Standard & Poor's 500-stock index earned 18.06% annually..."  (Jeffrey M. Lademan, 'Market Timing: A Perilous Ploy', Business Week, March 9th, 1998).

"In 30 years in this business, I do not know anybody who has done market timing successfully and consistently, nor anybody who knows anybody who has done it successfully and consistently.  Indeed, my impression is that trying to do market timing is likely not only not to add value to your investment program, but to be counterproductive." (John Bogle, founder of Vanguard Investments)

Notwithstanding the now ubiquitous use of 'risk profilers', there are relatively few questions you need to ask the client to determine how his or her assets are organised:

  • What funds might you need to access within a five-year period?  (This supplies an allocation to short-dated bonds)
  • What money should be kept in cash to avoid having to encash equities in an emergency? (That's your cash holding)
  • And all the rest goes into an appropriately-diversified investment portfolio.

Finally, here's a useful additional resource - the latest Dimensional Fund Advisers Quarterly Return:  enjoy!  (Hint:  the first three pages are pertinent).


Kevin Moss, 21/09/2018