I sometimes think of investing as a bit like planning and executing a military operation. A good general knows when to strike and we should be the same.
We have to accept that we cannot predict the future. Things like Covid, the Ukraine war, the nervous breakdown in the Tory Party, the current ascendancy in the polls of the most boring political leader in human history [Starmer] ready for the next ‘battle of the bores’ [Starmer v Rishi] general election, the mini-tornado which struck my house in Tiptoe two days ago (seriously) and many other things. Stuff comes out of nowhere as former Chinese president, Hu Jintao, appears to have discovered several days ago. Joe Biden must have shivered when he watched that video since he is almost exactly the same age as the confused looking Hu Jintao. Will he have to be led away one day?
So what can we do about our inability to predict the future. My solution is to track the ‘now’ very carefully and try to draw predictive conclusions accordingly. My main observation, using the various indicators which I have discussed in previous alerts, is that we should assume that the future will resemble the present until we have strong evidence to the contrary. In statistics this is known as regression analysis. You draw a line connecting the dots and project it indefinitely into the future. It is a bit like the weather forecasting idea that the best way to predict what the weather will be tomorrow is to look at what the weather is doing today (until that tornado hits)
At the moment my various indicators are unanimous that we are in a continuing bear market. It is reflected in many indicators. The US$ is strong (see chart above), the £ and many other currencies are weak, which is the converse of the strong US$. Interest rates at both the short and long ends are rising around the world. Inflation is out of control or at least that is how it will be described until it starts falling convincingly. The trend in my list of benchmarks (indices, ETFs, cryptos and stocks) is overwhelmingly negative. Moving averages are falling, downtrends remain unbroken and Coppock indicators are falling across the board. Good news from companies sparks a rally; bad news sparks a meltdown.
My first editor at the Investors Chronicle back in the 1970s, one Andreas Whittam Smith who went on to found The Independent and who I still see occasionally making his way slowly around Kensington (he is even older than me) used to say that bull markets begin when governments and central banks switch from trying to restrain the economy to trying to stimulate it, easy money v restrictive money. The current position is clearly restrictive (I know, poor Liz didn’t get the memo) which to AWS would explain why we are in a bear market.
This brings me to my heading – don’t try to force it. It is difficult when you are observing the stock market on a daily basis not to wonder with every half decent rally whether or not this might be the bottom. The truth is (a) it might be and (b) it definitely will be one day. But that is where patience comes in. Maybe shares did hit bottom on 13 October when the Nasdaq fell to around 10,400 against 11,430 as I write but there is no way of knowing that and buying into bear market rallies cam be very expensive.
If we sit tight until my indicators are more positive we may lose some of the upside but if the turning point is important and the start of a multiyear bull market there will be plenty of opportunities to make money and we will have some money to use to make it.
One the political front I think Boris has done the right thing. If he won, as Lord Frost pointed out, he might have struggled to form a government even with the amazing ability of politicians to trim their sales to whichever way the wind is blowing (witness the cavorting of Nadhim Zahawi for whom every leader is the answer to the nation’s prayers). I rather like Boris, a guy who lights up a room when he enters it sounds cool to me and if Caligula could run imperial Rome Boris as PM should be no problem. Italy seems to manage with 15 prime ministers a year so even the current prime ministerial merry-go-round doesn’t worry me that much. On the contrary I rather suspect that a period of government inaction, preferably one lasting decades, would bring huge benefits to the country. It worked for the Victorians.
As my radical cousin says it is obvious that nuclear weapons don’t exist because if they did the unprincipled morons running most countries would have blown us to kingdom-come long ago. Or, as he puts it, if you were going to give control of nuclear weapons to anybody in the world, the last people you would choose would be politicians (Boris, Trump and Putin with their hands on the triggers) and yet people are eager to hand over control of whole countries to these monsters and idiots.
Think about it. A scientist comes in, hair streaming wildly in all directions, eyes glittering feverishly.
“We have invented a weapon so powerful it could wipe out civilisation.”
“What are you going to do with this terrifying weapon?”
“We are going to give it to Boris Johnson.”
As readers will know I am nervous about bitcoin and cryptos in general. The charts are pointing down and until they change direction I will stay cautious. A fund manager called Cathy Woods, who runs the ARKK group of actively managed ETFs and is famous for taking bold positions like Tesla is a big bull of bitcoin. She sees the price at $500,000 by 2026 and one of her analysts sees the price reaching $1m by 2030. Reasons are basically greater acceptability and growing participation by institutions and governments in what has so far been a mainly retail investor led market.
I have absolutely no idea whether she is right or not and I doubt if she does either. However there is nothing incompatible with her fundamental bullishness and my chart-based caution. If the bitcoin price is going to go from sub-$20,000 to $1m that is a rise of 50 times and on the way the chart is going to look fantastic; that is when I want to buy.
Now think about that attitude for everything – shares, cryptos, ETFs. At some point in the next several years, starting next Spring according to my analysis, the charts are going to look amazing with Coppock buy signals and chart breakouts happening all over the place and new shares that we have never heard of looking exciting; that is when I want to start buying and if I miss the absolute bottom because I am cautious that is a price worth paying. As Warren Buffett. puts it sometimes masterly inactivity is the way to go.