By Alan Steel
Apparently the investor herd has grown wary of its own growing stock market confidence.
That’s despite the $£multi-trillion cash mountain that remains on deposit and earning nothing in the midst of this lowest of all possible interest rate environments.
And while market sentiment might be turning a bit, there’s little by way of evidence to suggest that big cash pile will be doing the same anytime soon.
Apparently the biggest ETF (by far) in the US, which tracks the S&P 500, is constantly being bought and sold by investors who are trying to guess the market’s next movements (about $76 billion worth of trades each day). Good luck with that!
Over here in the UK it’s reported the biggest inflows are into Mixed Asset, after a year when Absolute Returns was in first place.
All the while financial advisers are telling us investors are, “Turning their back on equities now because they’re worried.”
Ouch! It’s like a ‘Buy High, Sell Low’ cycle set to manic speed.
(The phrase, “Ya can’t fix stoopid” comes to mind).
Points Make for Counterpoints
After eight years and 14,000 additional Dow Jones points worth of opportunity, investor sentiment levels are still too tentative to breach the other side of scared.
To me this looks more like another long-running obsession with an impending disaster that never arrives…particularly when everyone is sure that it will.
Call it market crash mania, and we’re no strangers to this sort of behaviour.
Multi-year preoccupations with bad investment trends and their products seem like part of our genetic fabric.
Unfortunately, the fundamental shift in communications brought on by technology means that information (good and bad) is everywhere – eyeballs are the new currency and the loudest voice wins.
Worse still is that financial “bestsellers” are now built on our socialised need to be afraid of things, and to move with the herd towards the nearest place of perceived safety.
Back to the ’70s
Those were the days of safe Final Salary Pension Schemes (few savers owned shares back then), and for most long term investors; With Profit savings policies. Experts in the financial pages decreed that With Profit bonuses from Mutual Insurance Societies were unbeatable because they were cheap as chips and all surplus profits went to policyholders.
But a combination of maturity values and market forces meant that by the 1990s, actuaries’ cupboards were becoming bare. Then one after another the Mutuals had to be bailed out, and With Profits became “Without Profits” remarkably quickly.
“Henry” was Full of Sh%$…
Equitable Life mania followed. In they came like lambs to the slaughter, guided by the Judas Goats of journalistic shortsightedness and celebrity analyst endorsement.
The core motivation?
After another unsettling stockmarket crash in October 1987, the safe With Profits purveyor Equitable Life could do no wrong. Remember the slogan, “It’s an Equitable life, Henry”? Thousands piled into their With Profit pension plans.
And not only was Equitable a Mutual, but in addition to that we were assured their investment prowess was outstanding, and they were cheap.
Yet, despite public warnings from yours truly in April 1997, Equitable later revealed itself as an elaborate con in 2000, when it collapsed overnight, destroying the retirement plans of a few hundred thousand families.
The Worst Volvo Ever
More manias followed, as I wrote in May 2016 in an article called Cheap n Nasty for Daily Business:
“Split Cap Investment Trust mania followed (who thinks up these names?) were promoted by experts in the uncertain investment world post-crash. ‘Cheap’ and ‘As safe as a Volvo’ said media experts. Fed up with risk? Looking for high secure income? Well you know what happened next. The regulator at the time, the FSA, estimated investors lost over £620 million.
“So what’s the darlings of media experts these days? Come on down Index Trackers. They’re cheap and backtesting says that average funds don’t beat them. Who wants average I wonder. If not them it’s Absolute Return funds. Nice and safe they say. Have you looked under the bonnet? Studied their performance these last 5 years of investor and regulator worries following the shock stock market falls into early 2009? Go check for yourself.”
Look, there’s no prizes for guessing the last time the consensus got it right.
And the obvious trend here of following the herd into those cheap and allegedly hard to beat products masked in a veil of so-called safety does not end well.
Remember, there’s no long-term profit in short-term market mania.
Try focusing on the long-term instead and speaking to someone whose track records proves they are experts at doing that.
Because after all, it’s your money.