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Brian Tora: Markets breathe a sigh of relief over eurozone

Brian Tora MM blog side

For more than two decades now I have been sharing my thoughts and opinions on the world of investment with Money Marketing readers. When Tim Potter, the then editor of this esteemed journal, first asked if I would contribute a regular weekly piece, I had already tucked more than a quarter of a century’s experience in the investment world under my belt.

Rather frighteningly, I realise that next year marks 50 years in this business for me. Does longevity make for a better investor? Only sometimes.

Probably the best attribute any investor can possess is humility. Experience only counts if it makes you remember that nothing in the investment business is certain. Too often, a manager will become convinced of his own invincibility but even the Neil Woodfords of this world can suffer poor periods from time to time. Investment is as much art as science. What the science can do is reduce the opportunity for error.

Successful managers of money often focus on a single aspect on which they feel confident. One ex-colleague of mine concentrated on avoiding what he described as “torpedo stocks” – the type of investment that can turn sour very quickly with little warning. It worked overall for him but did not prevent him suffering periods of underperformance as the very stocks he shunned made the running.

All very interesting, I’m sure, but what relevance might it have for today’s investment adviser?

I am certain I will have mentioned before that each Investment View article is a small snapshot in time. Ideas will emerge through current events or perhaps a serendipitous confluence of experiences that suddenly throws a potential opportunity into stark relief. But when single issues dominate for long periods, grasping a topic out of left field is not easy.

And Europe has driven investment thinking for too long now, in my view. Still, last week’s snapshot was all about what is going on in the single currency zone from which we are, thankfully, absent. Popular wisdom now has it that a deal is on its way to completion. Certainly, Germany appears committed to help sort out the whole sorry mess, though remarks from Spain’s premier did serve as a reminder that, when democratically elected governments of independent sovereign states are involved, it is probably unwise to bet the farm on the outcome.

But markets rallied – out of relief if nothing else. Interestingly, it was in the US that the most beneficial bounce was seen. Then again, an election is looming there, so nothing is quite as it seems right now. What is clear, though, is that in the global economic village in which we all now co-exist, it is in all our collective interests to keep the trade pot bubbling and maintain the upward momentum for growth that all have come to expect.

This encourages me to believe that the time of the equity will come again although in truth it does not appear to have gone away in the US. OK, the dollar has gone back into reverse but that could be as much about the renewed optimism for Europe as anything. Certainly, there are those who even now are sniffing out cheap European shares in the belief – or hope more likely – that the worst is behind us and growth can resume.

The trouble is that our benchmark index is now so skewed to resource stocks that making a bet on our market looks risky. How a resurgence in confidence and an improved attitude to risk might play out is hard to assess but then it always has been.

For my money, I would still shun gilts – of the conventional kind – and embrace value. At some stage, the income-producing nature of certain equities must surely be recognised while low fixed yields in an inflationary environment look downright dangerous.

Brian Tora is an associate with investment managers JM Finn & Co


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