If you accept that the primary interest of investors is to form objective judgements about the outcome of uncertain future events, then the forthcoming UK general election poses a particular challenge. This is set to be the hardest general election in living memory to predict. The range of possible outcomes for who forms the next government is unusually wide. Among other consequences, not one of the mainstream party leaders can be certain of still being in post by the autumn.
It is normally quite rare to come across professionals with hugely successful careers lobbing grenades in the direction of the industry that has brought them fame and fortune over many years. When did you last hear a magic circle City lawyer or a bulge bracket investment banker complaining about the level of fees that their firms charge? It doesn’t really happen. It’s a grown up world out there and you take what you can get. So it is both interesting and refreshing to hear Neil Woodford, one of the biggest hitters in the fund management industry, politely and firmly pointing out some of the ways in which the largest firms in his line of work come up short. (This is the full version of my interview with Neil Woodford for The Spectator, published March 7th 2015).
There is more meat than usual in Warren Buffett’s annual letter to shareholders, out today, including reflections by both Buffett and Charlie Munger on the fifty year history of their involvement in Berkshire Hathaway, and why it has been such an exceptional success. If you are so minded you can read this well-known story as an extended indictment of short termism in both corporate boardrooms and the marble halls of investment bankers (especially the latter). Both Buffett and Munger claim that their unique corporate model will enable Berkshire the company to outlive thier personal involvement for many years to come, although I suspect history may not be quite so forgiving.
According to professors Dimson, Marsh and Staunton, in the latest edition of their Global Investment Returns Yearbook, investors often do well out of investing in companies which operate in “sin industries” and in countries where corruption is most developed. Doing bad, in other words, can often mean doing good for investor returns. That set me wondering how scandal-riven banks might fit into this matrix. Is it fair to classify them as the market’s new sectoral “sinners”? Banks provide many valuable services to customers around the world, and in a capitalist system it is as yet not a crime to lose money, although losses on the scale incurred in the great financial crisis from stupidly risky lending practices – in some cases verging on the fraudulent as well as criminally incompetent – cannot be so lightly dismissed.
Travelling up to Edinburgh last week to test the waters ahead of this week’s referendum vote, I found myself kicking off my visit by calling in on the cannily named Library of Mistakes, a newly launched charitable venture that aspires to offer Scottish students of all ages the opportunity to learn from the mistakes of their forefathers. The library is the brainchild of the market historian and investment strategist Russell Napier and is funded by many of the great and the good of the so-called “financial mafia” in the Scottish capital.
“Europe, bloody hell!”, as Sir Alex Ferguson might have put it had he ever chosen to swap the permanently febrile, money-driven world of football for the normally febrile, money-driven world of the financial markets. Recent disappointing growth and earnings data have underlined how fragile the European economy remains. It has, inevitably, forced a rethink by all those investors who have been enthusiastically driving equity prices up and bond prices down since the euro’s existential crisis in 2012.