Midweek Musings – Spanish Inquisition?

Friday is not mid-week, I know. Apologies if you were wondering why there was no post on Wednesday.

I saw this week a headline in the FT that ran: Investors Should Expect the Unexpected. How absurd.

Most readers will know why nobody expects the Spanish Inquisition. If not, ask Google, Bing or ChatGPT. It’s the meme from 1970’s BBC TV that you want, not 15th century religious history.

However in spite of the FT’s urging, investors cannot expect the unexpected, because if they did, it would have become the expected. You see the difficulty?

I can’t know what the FT wrote about this because I don’t pay their exorbitant subscription, so this is a bit of a rant (with a purpose).

Crystal ball gazing

The better point to make is that the next direction of the market is not often indicated by the easily available headline ‘facts’ or even the current pricing trend.

The next inflection in a given asset market is quite often not at all unexpected to someone who carefully reads relevant news and economic, financial and trading data. Such a person will also have to understand their personal psychological biases and how to resist them.

Furthermore, taking decisions in anticipation of what is going to be called later the ‘unexpected’ , but was in fact something entirely predictable (like say the bursting of the dot com bubble) is difficult because an investor who is sufficiently thorough will always be ahead of the market and will see short term underperformance or even losses (if the foresight prompts purchases rather than sales).

Knowing what is going to happen is not so difficult, but judging the timing is more tricky.

According to the Bible, it took 40 years for the legendary Jewish prophet Jeremiah to be proved right big time. In the meantime he was pretty unpopular. I have no wish to be thrown down a well nor for my readers to wait 40 years to see that I was right all along. I do think however that one can see what the market does not want to acknowldege maybe 6 months to 2 years ahead.

Give us another example, I can hear you thinking!

I already gave one: dotcom stocks in 1999 – I had none in client portfolios built on my recommendations. Another: the collapse of gilt and fixed income prices in early 2022. For now: problems coming out of China and that region.

Those are all worries. On the plus side: current undervaluation of UK shares outside the FTSE 100.

I am not obliged to give FCA risk warnings, being a mere blogger, so will end with a biblical one instead: Beware of false prophets!

I don’t really know the future, of course. I just make an educated assessment and I am wrong at times.