10 Aug 2018

A little more than three years ago I wrote in defence of the word “scepticism”. I said that scepticism, which was once habitually paired with the word “healthy”, was having its meaning changed pejoratively to imply that a sceptic was a borderline fanatic who was in denial of the consensus agreed by all enlightened liberals. But scepticism is essential to successful investment and it might do people some good to employ it on other occasions. Something similar but opposite has happened to the word “liar”. It seems that everyone with whom some people disagree is called a liar. It has turned into a playground taunt, an insult tossed off casually without thought as to its actual implications. I will explain at the end why this really matters. Let me insist, if I dare, on two conditions that must be satisfied if someone is to be convicted of lying. First, what they say must be false and second, they must have a reasonable expectation that it is false. According to these criteria it is a very strong accusation to make. In the House of Commons to accuse another member of lying is considered unparliamentary language and the words must be withdrawn. Of course, in a trivial way, most of us lie routinely every day. For this reason the phrase “white lie” was invented. The film “Liar Liar” is about the hilarious chaos that ensues when a lawyer is forced to tell the truth for twenty four hours. Saki’s story of Tobermory the talking cat, written nearly a century earlier, was based on similar comic consequences: as was  William’s Truthful Christmas by Richmal Compton (1925).  By and large, it is considered better to be kind than truthful in personal relationships. “What can I do, what can I do? Much of what you say is true, I know that you see through me, But there’s no tenderness beneath your honesty.” Paul Simon (Tenderness) The very existence of white lies alerts us to the fact that darker lies are serious stuff. People go to prison for perjuring themselves in court and the reason that they tend to receive custodial sentences (up to seven years) is that the law...

15 Sep 2016

This is a follow up to my last post about how QE is a wrecking ball that distorts financial markets and economic decision making. I have no opinion – despite a sceptical mindset – about whether QE is being applied correctly or about whether it will work. I doubt if even hindsight will allow people to agree about whether it succeeded. As an investor I need to weigh the probable outcomes of the distortion itself. Even this is not the same as making a definitive call on what will happen. That is gambling. As always, investing is about probability. THE WEALTH GAP – ONLY SHARES ARE CHEAP As long as QE carries on and the pool of safe assets shrinks further, savers in search of yield will keep chasing other assets. The stock market has been climbing the wall of fear this year. Before the referendum vote, George Soros and others forecast a decline of up to 20% in UK shares. Chancellor Osborne did not rule out suspending stock exchange trading in the face of the expected panic. With the atmosphere so full of “markets hate uncertainty”, that notorious cliché so readily embraced by third rate market commentators, many people will have assumed that the stock market would have performed its patriotic duty and dived after Brexit. But shares are cheap and quick to buy and sell, five days a week. I have just been offered a two year fixed rate bond by a building society that yields 0.95%. That’s a decision that ties up my money for two years. Were I to choose to buy Marks & Spencer shares instead I could get a dividend yield of more than 5% – and if I change my mind and decide that M&S is too racy, I can sell it in two minutes. Back in verdant Blackheath and vibrant Lewisham near to my house, yields on buy-to-let properties are between 3.6% and 4.5% (source portico.com). That seems like a lot of cost, time and risk compared to being a passive and better-rewarded owner of M&S. There is no hint that QE will be curtailed or reversed. On the contrary, the central banks of the UK...