What to believe

I was chatting with my daughters recently and we got onto the subject of beliefs. They have their own and they asked me how I arrived at some of mine?

I said that an impactful thing for me was reading a story about the Buddha relating how when he spoke he would basically tell his listeners.

“I’m going to tell you a lot of stuff, some things you will think are right, some you won’t, that’s ok, use what works for you.”

I explained that I loved the idea of being able to create bespoke models for myself guided by the great wisdoms rather than having to follow any preordained script in totality.

They thought for a minute and then one of them said.

“I get it but how do you know the bits you think are right, actually are right?”

There has been no shortage over the last nine months of conundrums requiring explanations, and there has been no shortage of those happily willing to give them.

Will the end of US QE result in their market deflating?
When should the US FED raise interest rates and what effects will it have?
Why has the oil price fallen so much?
Why has the whole commodity complex gone into free fall?
Is the China growth story over?
Can we believe their economic numbers?
Will European QE work on its markets the same way as in the US?
Will the Japanese QE and Abe’s 3 arrows of reform pull them out of their decades long slump?
What the hell is Putin thinking?
What effect will the Conservatives’ outright general election victory have on the UK (especially related to remaining in Europe), and more recently what does it mean for any effective opposition now Labour have elected a 1970’s throwback as their leader?

Doubt and the reaction to action

The mere fact that I can easily run off 10 big overhanging questions that markets are currently wrestling with illustrates why they are fretful and therefore lacking in conviction. This is borne out by the much higher levels of volatility this year when at times they have risen strongly and at others rapidly dropped; they don’t know what to think so have flip flopped around (it’s an interesting philosophical question to ask whether markets should ever actually believe they know as this absolute inevitably leads to excessive confidence or pessimism but that’s for another time).

Now accepting that actions and reactions are actually unknowable is an intelligent and wise position to take, especially when it’s really not possible to know. Even if the questions above were the only 10 variables in the world one would have to be able to predict all ten correctly, not just in outcome but also in timing to then possibly take an educated stab at what would be the most likely reactions, and plainly that’s not doable.

Simple can be genius

Returning to the question raised by my daughter, how does one know that belief in a view is correct? The answer as it relates to any of the 10 questions above is that no-ones answers are knowably correct, some will have got it right but that’s only knowable (by them or us) in retrospect.

What we do know is that the confidence level of investors is raised when an authoritative figure states ‘without doubt that this means this and that means that’. But that this confidence is in fact dangerously false comfort.

There are few things that are knowable; they are big life wisdoms distilled into an essence generally and none of them predict future reactions, they rather suggest personal actions.

But as an example of the ‘simple is genius’ idea, there’s the story about NASA and the identification of the need at the beginning of the Apollo missions to develop a pen which could write in zero gravity, zero temperatures and upside down. It was achieved by them over a decade at great expense.

Years later it was learned that the Russians had developed their own solution.

They used a pencil.

Why invest

As the recent blogs on property ownership have highlighted the reasons why investments work are complex and the difference between perception and actual performance can be large.

So here are the simple (but genius) reasons to put money to work by investing in a portfolio of assets.

If you don’t then the value of money is eroded by inflation.
It’s not possible to time markets because nobody knows what will happen next so don’t try.
The returns on assets that fluctuate in value over the long term perform far better than from those that don’t.
The reason that most people fail to invest successfully is not a lack of intelligence but rather an inability to stay unemotional and on course in difficult times.

So what are we doing?

This is the point at which I hand over to the mighty George who will run through the portfolios and different asset holdings in detail.

Quarterly Portfolio Update Q3 2015 – click here

Quarterly Market Update Q3 2015 – click here