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Do wise men

There is a select band of people in the investment world whose every pronouncement is scanned for prophetic content. A single word can affect the direction of the markets.

The most prominent of these figures are George Soros and Warren Buffett. The former is best known for his highly speculative wagers, particularly when he made £163.1bn after forcing sterling out of the ERM. Buffett, on the other hand, has achieved cult status for his long-term management style and consistent outperformance of the indices.

The fact that their approaches can be contradictory seemingly takes little away from their respective influence.

Buffett&#39s US insurance company Berkshire Hathaway saw poor results in 1999 because of his reluctance to leap on the technology bandwagon. But last year that stance helped it share price soar to a two-year high. Meanwhile, the fact that Soros has had a poor run in recent years has done little to diminish his standing.

The single most important skill in investment is predicting the future. Enter the cult of personality.

Making predictions is one thing but taking massive risks is another. Yet the ability to go against the herd is what often marks out the gurus from the fading stars.

A favourite figure of financial reporting is the Greek mythological figure of Cassandra who warned the Trojans of invasion but was dismissed as a madwoman.

Looking to the present day, Fidelity senior investment director Anthony Bolton is seen by many as a home-grown guru. He says: “I am quite happy to be different, to go against the trend, to be contrarian. Generally, I must say I feel happier doing what other people are not doing. I always feel slightly uncomfortable doing what everyone else is doing.”

Given current turbulence in world stockmarkets and the likelihood of a bear market in the next few years, a new crop of investment stars could emerge.

Bates Investment head of research James Dalby says the more the press mention these cult figures, the more their status is enhanced.

But the extent to which their pronouncements filter down to IFA level is difficult to ascertain. Dalby says clients do come in mentioning the gurus, particularly Buffett. “While clients might be interested in the wacky funds managed by these high-profile individuals, IFAs are, of course, not authorised to buy into them,” he points out.

Most individuals are priced out anyway. Berkshire Hathaway shares, for example, have traded for as much as $80,000.

But Hargreaves Lansdown head of research Mark Dampier says none of his clients has ever referred to these gurus. “Most people in the country have no idea who Buffett is – that is the depressing truth.”

Dampier believes that while investment has a high profile in the US, the general media in this country give the subject little coverage. He says the situation in which a fund manager could have influence generally, such as Buffett&#39s recent intervention in president George Bush&#39s proposed tax cuts, is unthinkable in the UK Plan Invest joint managing director Mike Owen has noticed personality coming to the fore in the fund management industry.

While his clients may not have heard of Buffett, they are increasingly aware of the movements of star fund managers, such as William Littlewood&#39s departure from Jupiter. “I doubt if they would have been aware of that five years ago,” says Owen.

Owen believes there are good and bad sides to this development. He says: “It certainly does not mean we ignore the funds run on a collegiate basis, such as those of Britannic and Threadneedle.”

He suggests it is easy to be a star in a bull market but what marks out someone like Buffett is the ability to outperform year after year, irrespective of mar-ket conditions.

Owen singles out Bolton as one of the few fund managers in the UK who can aspire to that status and moreover, one of a handful who have been there for a decade or more.

“I think the concept of the star fund manager will be put on ice during a bear market. Clients will not be impressed by being told that a certain fund manager only lost 10 per cent when all the others lost 15 per cent,” he says.

While the superstars of the investment world might not always have a direct impact on IFAs, does this mean there is nothing to learn from them?

Owen says IFAs have a duty to find out how much risk a particular manager is taking.

Rather than focus on the stars created by spectacular gains, he believes there needs to be more emphasis on what risks were taken to get to the top.

He suggests Invesco&#39s European growth trust as an example of a fund that made spectacular gains only to be dragged down by over 50 per cent by the technology stocks in which it was heavily weighted.

Some believe the coverage achieved by people like Soros and Buffett lead to unrealistic expectation among investors.

Dalby says: “Often, my job is to provide my clients with clearer investing perceptions.

“Clients might think there is a Midas touch and that one can make astronomical sums of money. I see my duty as adding a healthy dose of reality.”

One of the current equity strategists in vogue is Abby Joseph Cohen. She is famed as saying: “The market moves on fundamentals, not on what one strategist says.” The irony is so few take her at her word.


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