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As a basic maxim of investment appears to be exposed as a myth, it dawns on the chairman that the key to success as an investor is a matter of looking not forwards, but backwards
“So where did Scam Higher Income feature in the latest White, Grey and Black Lists, and do you have plans for hitting back?” I asked the chairman of the implausibly-sized investment company Second Coming Asset Management as we looked to enjoy a few pints of Schadenfreude at The Recent Towry Law Decision.
Unfortunately, the whole supply had been drunk by the many, many financial advisers now crammed into the pub and apparently celebrating something or other, so I settled instead for a pint of Best Read The Judgement Closely and he went for a Be Careful What You Wish For. For some reason these seemed far less popular options, although, as the chairman is fond of observing, every drink has its day.
“Chance would be a fine thing,” huffed the chairman in response. “I did once ask a chap at Principal why the fund never appeared in any shade of list and he said it was because it had a blackness all its own – like, and I quote, ’a black hole that splits molecules into component atoms, unzips electrons from their orbits and releases matter into pure energy’.”
“That sounds a bit poetic for Her Majesty’s financial services industry,” I said. “I believe it is from something called The X-Files,” sighed the chairman. “Whatever – they are not really the qualities most income investors are looking for and so I can only dream of the day I might be able to complain about analysts’ views on something like the fund’s underlying risk.”
“One day maybe,” I said, trying to sound encouraging. “Now, what are your thoughts on myth debunking?”
“That depends on the kind of myth we are talking about,” the chairman replied cagily. “If it is King Arthur or the Loch Ness Monster, for example, then let them be. They make the world a brighter place. (Scam continues below)
“If, however, you think you might have heard some story from my dim and distant past, I didn’t do it, no-one saw me do it and there is no way you can prove anything so consider that myth well and truly debunked. Um … which kind are you talking about?”
“Neither,” I replied. “It is about whether three or five years is a better investment time horizon.”
“What an incredibly boring kind of myth,” said the chairman. “Anyway, doesn’t it all rather depend?” “So I had thought,” I agreed. “But now I learn ’a shorter investment horizon pays off’ and ’the best-performing UK equity funds deliver their highest returns over three years rather than five’. Thus has Moneyspider debunked the myth that ’the longer an investment is held, the greater the profits’.
“For the company has revealed an investment in its top-performing rated fund over three years to February 1 would have grown 246% while one in its top-performing rated fund over five years would have grown 109%, thereby unquestionably proving the maxim ’the longer you hold an investment, the bigger your return’ is now ’dead in the water’.
”I asked a chap at Principal why the fund never appeared on any shade of list and he said it was because it had a blackness all its own”
“That must come as quite a shock to anyone who held equities over the first decade of this century,” said the chairman. “Now, forgive me for being slow – you know the whole investment part of investment doesn’t always come easily to me – but this is saying someone who invested at the start of 2007 would be sitting on a smaller return than someone who invested at the start of 2009?”
“That’s about it,” I nodded. “As Moneyspider also intones, ’Reward does not necessarily come to those who wait’.”
“So that means,” the chairman continued excitedly on his own sort of voyage of discovery, “someone who invested some months before the Footsie’s peak this century will have done worse than someone who invested at pretty much the post-Lehman’s low?
“Of course – it’s so obvious when you put it like that. I cannot believe I have been listening to my fund managers gibber on for years about how buying companies on low valuations is the best way to make money in the stockmarket when all they had to do was to look backwards at an appropriate point in time. I tell you, when I make it back to the office, heads are going to roll. Another pint?”
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