If you want to know about Heisenberg’s Uncertainty Principle, it states that the more the position of a particle is determined, the less precisely its speed and direction can be known. Or the sinking of the Bismarck? Its guns were calibrated to shoot down any hostile plane which was doing 125 mph or more. But the British had Swordfish biplanes which, with a full load, barely made it to 85 mph, and reached their target.
And perhaps you wonder why the tax year starts on April 5?
Apparently tenants and landowners used to start contracts on Lady Day, March 25, because that was the time when day and night were equal. That was the day also used by the Treasury for taxation. Then in 1752 came the switch from the Julian to the Gregorian Calendar, which meant the new date was moved forward 11 days. Hence March 25 became April 5.
Books about investment never really tell you how to invest but David Miller does because he does it himself. He has been doing a blog, Diary of a fund manager,* since 2014 and now he has put 100 of his best articles into a book. But investing is a subtle business, with all manner of cross-currents and eddies to trap the unwary. He therefore talks less about p.e ratios or ebitda, but rather more of “what I write about when I write about investment”. The result is those little asides, like Heisenberg, or Bismarck, or the April 5 tax date, which pepper the book but give investment a real world focus.
He also believes in active trading, but not the kind of activity which most fund managers indulge in. He tells us that in 1945 the average holding period of a US stock was four years. By 2000 it was eight months. In 2008 it was two months, and by 2011 it was 22 seconds. Share prices now often fall 20% on what is marginally disappointing news. This does present active managers with opportunities. But getting it right still relies on fundament research and valuation.
Passive funds are all the rage and active managers are feeling the heat because so many of them fail to match the indices which passive funds are there to track. But fund management to Miller is actually about adding value across several economic cycles, a few wars, some irrational exuberance and a credit crunch. That, rather than doing a bit better than tracking an index, is what fund management should be about. That is how he wants his clients to feel comfortable, not simply to beat the index.
He is pretty indifferent towards hedge funds; they were good but today they are much more run of the mill. He compares them to a battlefield commander and one of similar rank who never saw action. When they started, hedge funds had to fight and those that prospered made a great deal of money. But then everybody wanted to be in on the game. The battle-hardened veterans gave way to the armchair generals who started soliciting institutional money. As a result hedge funds now do no better and in some cases much worse than regular active funds, but still charge hefty fees.
He also says individuals are far better than institutions at coping with change, so for example, consumers have long ago deserted Marks & Spencer because it no longer gives high quality and a reasonable price. Successive managements will talk up the future and how they will resuscitate the ageing brand, and institutions may believe them. But it never works. The consumer has gone. But consumers also don’t like paying for things.
Disruptive business models driven by technology might work in insurance and banking, but how do you get the customer pay for it? Generation Y and the millennials don’t think they should pay for anything, and they are making a good fist of not having stuff. Or look at high street shops. These days everybody wants a discount. If they don’t get one, they go online.
He believes in companies, not sectors of economies. His recurring theme is the world is changing and all the investor can do is keep an open mind to see what opportunities emerge. But that is very hard to do. Value is being destroyed at an unprecedented rate, and we have our prejudices. Some businesses will crash, others will fail to make a go of what is new and a very few will prosper.
Whether the investor gets it right, or more right than wrong, remains to be seen. But Miller is at least trying to show the way.
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