11 Jun 2018

When making investment decisions I try to employ pragmatism and to avoid behaving emotionally or irrationally. As a rule of thumb, most other words that end in “–ism” are not useful. Optimism, pessimism, idealism – these are all attitudes that we find appropriate or inspiring in our daily lives but when it comes to making decisions supposedly based on evidence, they load us with confirmation bias.

I read a good piece about The Psychology of Money which points out no fewer than twenty common mistakes that can damage your wealth. One that I particularly liked was titled: “The seduction of pessimism in a world where optimism is the most reasonable stance”.

Brexit, or the contemplation of it, appears to have plunged half of the UK into some kind of collective nervous breakdown. It is group-think of the most destructive kind and its victims wallow in anything that can be spun as bad news. Bluntly, they see pessimism as a virtuous scourging exercise because the people must pay for their sins.

This is a phenomenon that is far from new. Gilbert & Sullivan wrote the Mikado in 1885. The song “As some day it may happen” is a “little list” of “society offenders” which reads rather oddly in 2018 (lady novelists?; seems harsh). But 133 years on, we are still very familiar with:

“The idiot who praises, with enthusiastic tone, all centuries but this and every country but his own.”

The current leader of the Labour Party, anyone?

Moreover, anyone who is upbeat today is liable to be seen as deluded or laughable or even dangerous and fanatical.   

The current President of the United States, anyone?

In my report on Q4 2017, just after the Trump tax cuts had been implemented, I wrote that:

Almost all the reporting in the UK mocks Donald Trump and strains to suggest that he is incompetent and dangerous.

This remains mostly true though some people are beginning to contemplate the idea that Trump’s thoroughly unfashionable bullishness may be effective. He is bullish and he is demanding: put those two words together and you might come up with the word bullying – just how unfashionable can this man get?

I was in on holiday in India at the beginning of March and saw a story about a conversation between the Indian PM Modi and President Trump. Modi telephoned Trump and said that India was going to cut tariffs on imported US motorbikes from 100% to 50%. Did Trump thank him? Did he hell. Note that there are no tariffs on Indian motorbikes sold into the US.

“I said okay, but so far we’re getting nothing. So we get nothing. He gets 50 (per cent), and they think we’re doing — like they’re doing us a favour. That’s not a favour.”

And now, to the consternation of all decent liberal commentators, Trump appears to have told the other G7 nations where they can stick their trade deals. He seems to think that they have more to lose than he does. Here is the President’s latest Tweet:

PM Justin Trudeau of Canada acted so meek and mild during our @G7 meetings only to give a news conference after I left saying that, “US Tariffs were kind of insulting” and he “will not be pushed around.” Very dishonest & weak. Our Tariffs are in response to his of 270% on dairy!

Whatever you think of Trump one word that you would probably not use about him is defeatist. Defeatism is the twin of pessimism.

From Project Fear, which, having failed once, appears to have been intensified since the 2016 Brexit result, and “strong and stable government” as offered in 2017 by one of the most indecisive and vapid politicians ever to have held high office, Britons are constantly being told that their future is a terrifying fate from which they must protect themselves. Defeatism pours out of every media outlet in a dismal grey stream.

I find this ridiculous and quite sad but as a pragmatic investor I like it a lot.

All bad corporate news is seized on as proof that the predictors of doom are right. For example, there have been a number of high street retail names throwing in the towel recently. With a passing acknowledgement to the rise of online shopping the headlines are chiefly concerned with price inflation (really?) and stagnant real wages leading to the death of the high street.

Investors who owned Debenhams shares at £2 in 2006 and see them at 20p now might feel that there is more to the story. Investors have been burdened (the correct word) with a pretty relentless stream of poor news and evidence of poor management. If you ask a shareholder of Debenhams what went wrong he is unlikely to say; Amazon, inflation, stagnant wage growth and Brexit. He is more likely to say that the company is being dragged towards oblivion by its lease obligations.  

It will be a similar story for holders of Mothercare (£5 in 1996, 30p now), Dixons Carphone (£5 in 2015, £2 now) and M&S (720p in 2007, 300p now).

By contrast, good corporate news is, it seems to me, barely reported outside the detailed company reports in the City pages. The price of BP, owned by many of our pension funds, has risen by 33% since last summer – suffering consumers hit by higher petrol prices! The price of Tesco, also widely owned, is up by 40% over the same period – suffering consumers hit by higher food prices!

Euphoria is very dangerous for investors. Pathological misery is quite useful as long as you can keep your head while all about you are losing theirs (and possibly blaming it on you – for more on blame, see here).

For now, the threat of euphoria appears to be contained within the Twitter account of a single individual who, clearly, just doesn’t understand how awful everything is….

In many ways this is the greatest economy in the HISTORY of America and the best time EVER to look for a job!

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