Definitely Maybe

“It is your destiny…” Darth Vader

We live in a world of paralysing choice. Gone are the days where you can simply turn the TV on to one of four channels and watch whatever was on. Evenings are now almost evenly split between squabbling about what to watch and sulkily watching it. Some have argued for broader effects too - The absence of media choice in the past helped force us onto common ground with our fellow humans. Whatever our upbringing, we holidayed from reality with the same soaps, dramas, and gameshows.

That the most popular search term on Bing is 'google' is possibly a sign of a collective need for a return to a world of less choice? A would-be investor ogling the world of investments must feel similarly. The multitude of asset allocations, investment strategies and polished looking individuals fronting them is understandably paralysing. In amongst all those options and accompanying (soft) promises, is there a ‘right’ one?

The right investment…

One of the many problems you will have in this search is the battle with your instinctive (and understandable) preference for the tangible, the bird in hand so to speak. In investment terms, this can lead us to give too large a role to investments we can touch such as property over ones we can’t like stocks.

Another more common problem, even amongst the gnarliest professionals, is interpretation of past performance. We have a talent for ex-post rationalisation. Just as sporting success for a national or any side has us all falling over each other to (briefly) praise the relevant system or leadership architecture, a rising investment spews ex-post justifications in its wake. Skill and agency are mostly emphasised over luck, likely a sop to our innate need to believe in them rather than anything troubled by messy reality.[1]?

The most serious investors will spend time and energy trying to establish what of a particular investment’s past performance, whether company share or multi asset class fund or anything in-between, was luck and what was skill?

It is clearly (repeatable) skill, if there is such a thing, that you are looking to pay up for. Unfortunately, there is likely a lot less of it about than we crave. In a world where investment prices rapidly incorporate all new information, and the future remains inherently unknowable, we should assume that much past performance data owes more to luck than today’s 'masters of the universe'[2] will claim.

Some might long to live in a hamster wheel of perfectly repeating decades, a world where past performance data might matter for a while. However, Dante’s imagined punishment for avarice in the fourth circle of hell ?should be instructive. There is merit in uncertainty. Some of our species’ greatest spurts of progress were birthed amidst its abundance and the answers we were forced to find.??

In the search for the best investors to deploy on your behalf, that should tilt you towards those able to think probabilistically. This again cuts against an industry need to present a confident face. Why would you bet your hard-earned savings on someone (or a team of someones) apparently lacking in a confident vision of where markets, economies, or some little part of them are heading? President Truman famously begged for a one-handed economist; it is surely understandable for would be investors to feel similarly.

Some predictions

The world economy still looks a lot more likely to grow than not. Within that it is still the US that currently looks the surest bet. (Figure 1) Sensible investors will ignore the incoming election and all the surrounding sound and fury. Your time will be more profitably spent analysing the prospects for the current productivity pick up to be sustained. That will have little to do with the political hue of congress or indeed the occupant of the oval office.

The current dalliance with protectionism/industrial policy on both sides of the US political aisle is likely unhelpful even if somewhat understandable. Less growth and more inflation will surely result from forcing the global economy to organise less efficiently. However, part of making that an investable insight rests on the idea that we have a confident grasp on the pre-existing trend in US (or other) growth in the first place. That is simply not the case. We should be especially humble on this front at this moment of maximum disruption. We and the economy we occupy are different to our 2019 selves.

Get invested in a diversified batch of capital markets assets and get back to watching re-runs of family fortunes, big break, and bullseye. You know it makes sense.

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*This article is for information purposes only. It is not intended as a product offer or investment advice

[1] Often cited as emblematic of this discomfort with randomness is the observed fact that gamblers rolling dice tend to concentrate and throw harder for higher numbers, softer for lower

[2] Wolfe, Tom (1987) – Bonfire of the Vanities. Penguin