The recent headlines in the Money sections of the broadsheets have talked much of GameStop and Robinhood. The GameStop story is interesting but private investors disagreeing loudly with fund managers is not really very new.
We have many clients who have considerable wealth in one or two stocks, usually as a result of employment but stock specific risk ( or concentration risk ) is something we have always argued should be diversified away. As I and my co-authors of The 7 Secrets detailed years ago, private investors lose to institutional investors on a huge scale on average. They hold too few stocks and trade too frequently; on average.
Those words – “on average” – have cropped up a great deal recently. It is true that the average household in the UK has saved an extra £7,000 or so during the pandemic ( CEBR December 2020 ). It is true that cruise holidays booked for 2022 are already greater in value and number than those for 2019 ( Carnival Cruises January 2021 ). But many households have no savings or negative savings, job losses are going to rise and cause misery; and many households here in the Shires and London are struggling to buy sufficient food to feed themselves. I fear as well as suffering this will cause resentment.
Averages crop up everywhere in investment literature. It is true that the bear markets last an average of 14 months if you pick your data carefully. It is also true that the Dow Jones Industrial Average did not re-reach its 1929 peak until 1954. Data can guide but it can also easily mislead. This is why our investment advice is based not just on data, but on the best academic interpretation of that data that we can find.
We remain concerned about inflation. The Bank of England’s Monetary Policy Committee seem to agree. On Thursday they predicted a sharp bounce in inflation as well as an increase in unemployment ( peaking at 7.75% ). Despite the announcement that they will investigate negative interest rates, this now looks less likely than a few weeks ago.
There remain things to be pleased about. Not least the news on vaccines. Also despite Davos being postponed until next year ( = cancelled surely ? ) the world has kept on spinning. Mr Trump is out of the White House. Larry Fink is the CEO of the largest money manager in the world – BlackRock. His annual letter to the CEOs of the listed companies was published in January and focuses on climate change which he advises “has become a defining factor in companies’ long-term prospects”. His 2018 letter asked CEOs to clarify their companies’ purpose and specifically their obligations to groups other than their shareholders. When the CEO of BlackRock writes about companies’ obligations and climate change, everyone realises something serious is afoot.
Sadly we pretty much all personally know people affected by Covid 19. Many of us have now lost friends or family. We offer our condolences. Hopefully the rollout of the vaccine to frontline NHS staff will dramatically reduce Covid deaths of doctors and nurses. These incredibly hard working individuals will be scarred by their experiences for the rest of their lives. As we reach the end of this wicked period I expect we will see mass resignations and early retirements. We must support these great individuals.
We hope to see you soon