En Voyage - Issue #8
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Business<br />
BY MARK BOUSFIELD,<br />
RAVENSCROFT GROUP MANAGING DIRECTOR<br />
RAVENSCROFT INVESTMENT MANAGEMENT<br />
WHAT DO I KNOW?<br />
BUT LORD KNOWS EVERYBODY'S TALKING<br />
'BOUT EXPONENTIAL GROWTH<br />
AND THE STOCK MARKET CRASHING IN<br />
THEIR PORTFOLIOS<br />
What do I know? Ed Sheeran, 2017<br />
Let’s step back in time a whopping 18 months. At the<br />
beginning of June 2016 quite a few things were certain<br />
in most prognosticators’ minds. Firstly, David Cameron<br />
(remember him?) was the increasingly powerful UK<br />
Prime Minister with a tight-but-workable majority against<br />
a dead-in-the-water Labour Party led by Jeremy Corbyn.<br />
Secondly, as a consequence of this (and despite no<br />
little chuntering) under Cameron’s leadership, the UK<br />
was about to reaffirm its membership of the EU and<br />
take a leading role in what was an increasingly sceptical<br />
assembly. Thirdly, Angela Merkel was the most powerful<br />
woman in the world and Chancellor of a Germany<br />
unchallenged in its de facto leadership of the EU.<br />
Finally, since she was running against a reality show<br />
host and all-round joke, Hillary Clinton was a shoo-in<br />
to become the 45th President of the United States.<br />
How do you like me now?<br />
If you’re the type who likes to use world events and<br />
politics instead of fundamental valuation to inform your<br />
investment decisions – and still believes in their own<br />
intellectual perspicacity – then I’m sorry to say that in<br />
2017 you’ve almost certainly got it badly wrong. Again.<br />
This is not to inveigh against those attempting to<br />
use their education and experience to plot their way<br />
through life while trying to make sense of what goes<br />
on around them. After all, what else can we reasonably<br />
do? But it is to point out, yet again, that things rarely<br />
go to plan – and that forecasting is a mug’s game.<br />
Of course, with hindsight all of us can confidently<br />
state that the warning signs were there. But how<br />
many of us made investment decisions based on the<br />
correct outcome? Who, to put it crudely, put their<br />
money where their mouth was? Not very many, by our<br />
reckoning, since, despite the apocalyptic Brexit and<br />
Trump forecasts put forward by the UK Treasury, the<br />
EU, the IMF and just about every financial and media<br />
institution you can name, global markets have basically<br />
been on a one-way tear. None of this is to say that they<br />
won’t reverse – they will – but it does mean that expert<br />
forecasting is absolutely worthless, especially when it<br />
is seasoned with a large pinch of political partiality.<br />
Take this famous answer to the question of US<br />
market recovery (it suffered a minor bump) from the<br />
New York Times’ Nobel-laureate economist in the<br />
days after Trumpageddon. Starting with a pouting<br />
“frankly, it’s hard to care much…” he went on to say<br />
that “…a first-pass answer is never.” You can take<br />
two things from that. One, Paul Krugman allowed<br />
emotion to cloud his judgement (which is interesting<br />
for a ‘rational’ economist); and, two, that his advice<br />
would have lost you a hell of a lot of money!<br />
Here’s the thing. Psychologists can very clearly explain<br />
to you all the reasons why we continually make these<br />
mistakes; indeed, many other behavioural economics<br />
Nobel prizes have been awarded for precisely these<br />
insights. But their explanations also encompass why we<br />
can, on the one hand, ‘know’ why, but, on the other, be<br />
completely unable to overcome our own biases. It would<br />
be funny if it weren’t quite so tragic (and expensive).<br />
As we depart 2017, the world’s (2016 vintage) most<br />
powerful woman may or may not be able to form<br />
a coalition government and thereby limp, much<br />
diminished, into 2018. The UK may or may not remain<br />
part of the EU Single Market – or even the EU – as a<br />
result of endlessly acrimonious negotiations that will<br />
occupy the front page until at least 29 March 2019; this<br />
may or may not precipitate a Labour government led<br />
by a bloke who thinks that Venezuela is a beacon of<br />
economic and social progress. Donald Trump may or<br />
may not be impeached by the Russians (only kidding).<br />
And Guernsey may or may not get an education policy.<br />
To sum up Ravenscroft’s thoughts about what’s<br />
to come in 2018? We have absolutely no idea…<br />
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