The million-dollar question

We live in a complex world.

I am sometimes asked, “Should we move everything to cash?”. My answer is often, “Why?” This sparks a discussion about what someone has read or seen.

I have started reading a book called Propaganda by Edward Bernays, which was written in 1928. It has an introduction by Mark Crispin Miller. There is some debate around the meaning, but in the 20s, the US used it to " educate and provide information”. Propaganda is a dangerous weapon in the wrong hands.

Look at the latest campaign video for Trump (if the video is genuine).

“And on 14 June 1946, God looked down on his planned paradise and said: ‘I need a caretaker.’

“So God gave us Trump,” the voiceover adds.

There is a sense that those using propaganda start to believe in what they are saying and, therefore, lose touch with reality. This becomes dangerous because people’s belief system shifts to what they think is true.

Without causing a debate, it is interesting to hear people on the right state that the BBC is too left-wing and those on the left say it is too right-wing. If this is the case, you could argue that it is probably navigating the news reasonably well.

I recently attended an investment seminar, and they outlined the four economic themes that they see:

But what about

Thinking about the themes above, my natural question was, “What if there is a wider Middle East Conflict, a war with Russia or Trump entering the White House?”

The answer I felt was wise. These are factors they can work around. The known unknown, unknown known, or unknown unknown are much harder to plan for.

The World Economic Forum recently issued its Global Risk Report for 2024. The chart below outlines that very few people see stability globally over the next ten years.

This chart outlines the key risks:

What is fascinating is that AI-generated misinformation and disinformation are seen as the 2nd most significant risk, and societal and political polarisation is not far behind.

This further breaks down the risk over the next two and ten years.

Going back to my question to the investment manager, there are certain things we know and must navigate, but there are also things we have little control over.

Run to the hills!

We live in a world of information overload. I saw these stats on heyday.xyz, which outlined how much information we consumed on our desktop browsers in 2022:

• 1,968,000 words.
• 1,596 articles (thoroughly read 300).
• 6,852 Slack messages.
• Visited 9,888 pages and carried out 3,528 searches.
• Spent 540 hours on documents.
• Had, on average, 18 tabs open at a time.

One of the key points that stood out to me was that this level of information means we push so much into our brains that we have no time to reflect.

We may debate these figures, but they demonstrate that we are in danger of overload. Overload can harm us and lead to a point where it is hard to navigate our personal and professional lives. During these periods, we can find ourselves being sucked into propaganda because we can’t distinguish right from wrong.

I googled “Should I invest now?” and hundreds of articles tell me why now is a good time, or why we should wait.

However, there is perpetual fear. What happens if I miss out? Over the last year, the Fear and Greed Index has been a brilliant demonstration of investor sentiment in the US.

In twelve months, it has bounced between extreme fear and extreme greed. The chart below is perhaps another reflection of sentiment.

I used different styles of the chart below, but I think this demonstrates well how people feel when it comes to investing:

Markets go up and down, and the more information we consume, the harder it is for us to navigate what is actually happening.

The Fear of Missing Out (FOMO) is massive. Towards the end of the 90s, people saw excellent returns from technology, clouding people’s judgement. We can see this with Bitcoin, AI, etc. None of these are bad, but we must understand what we invest in and why.

Most people who want to invest for ten years or more shouldn’t worry about what happens today or tomorrow. The danger is chasing what we believe to be the next winner.

Tips for Investing

As I have said to others, if you apply logic, it delivers some common sense. However, logic and common sense don’t stop people from doing stupid things!

This chart is entitled Panic Attacks and the S&P 500.

The point of all of this is that if we go back over history we see times of financial crisis:

Great Depression 1932

Suez Crisis 1956

International Debt Crisis 1982

East Asian Economic Crisis 1997 – 2001

Russian Economic Crisis 1992 – 1997

Latin American Debt Crisis 1994 – 2002

Global Economic Recession 2007 – 2009

These charts from awealthofcommonsense.com are helpful:

The point is that events happen, and as we can see, even safe assets can fall.

The starting point for any investment is how much we are prepared to lose. For most, we would be terrified to lose money. However, we are lured into the promise of excellent returns.

Some thoughts on investment.

• What is the plan and timeline? An investment period of ten-year plus is very different to one of perhaps two years.
• Over history, “value” outperforms “growth”; this is about paying the right price for a company.
• Small cap tends to outperform large cap.
• ESG might be a “fad”, but it is about information. If a company behaves well towards suppliers and staff and tries reducing its carbon footprint, it will naturally feed into returns.

The chart below shows the difference between small and large-cap companies.

I have prepared two charts on value. Up to the end of 2017, value outperformed growth. However, as seen in the second chart, this has been reversed.

A tilt towards value and small cap makes sense in constructing any portfolio, but having a diversified mix of assets takes away the short-term fear. Things will happen, but a diversified portfolio should deliver positive outcomes over the long term.

If we try to guess the market, it usually goes wrong.