En Voyage - Issue #8

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