Julian Marr Marr’s Markets
If only I had been booked on a different plane this morning, I would not be writing this piece in Schiphol Airport, finding myself irritated by the incessant stream of information announcements and wishing passenger Somerset would please get a wiggle-on because he is delaying his flight to Oslo – not to mention breaking my train of thought.
And if I had not drunk what I drunk last night in a couple of very nice little bars in central Amsterdam – no they were not and no I was nowhere near it, please get your mind out of the gutter – then I would probably be feeling a little perkier and certainly less inclined to throttle the lady running the public address system.
Oh, isn’t hindsight a wonderful thing? No, not really. Dressed up as experience, it has its uses – let’s face it, how I felt when I woke up this morning was not exactly a surprise – but as for wishing, just this once, that I had been flying BMI rather than British Airways … well, it is not really going to get me anywhere. Quite literally, as things stand.
Which brings me to financial website Motley Fool, an institution I would normally no more choose to poke with a stick than I would kick a puppy – and an admirably educational, informative and thought-provoking puppy at that. But there is something about the site’s latest research on the best-performing Footsie shares of the last five years – maybe “list” would be a more accurate description than ‘research’ – with which I have to take issue.
I am happy to go along with the basic premise of the associated release, which is that investors can give themselves a chance of boosting returns by bolstering an indexed investment with a couple of “judiciously chosen” individual shares. But – leaving aside for the moment the issue of judicious choice – what about this?
“Shares in software company Autonomy have risen over 900 per cent and the market value of insurer Admiral has gained 260 per cent in five years,” note the good, good people at Motley Fool. “Household products maker Reckitt Benckiser has increased 120 per cent and brewer SABMiller more than 115 per cent.
“Consequently, allocating, say, a small portion of a share portfolio to just one or two of the companies that have outperformed the index alongside an investment in a stockmarket index tracker would have delivered better returns than investing in the index alone.”
Um, ye-es – but that plan does kind of depend on your only picking winners. And yet, for every Autonomy between 2004 and 2009, there’s … well … how about Autonomy when the technology bubble burst in 2000? Remember that? I bet investors in, say, the Murray Enterprise investment trust around that time do.
Or, to put it another way, I think I once heard some-where that the value of investments can go down as well as up – and this can happen even to the most judicially chosen portfolio. Now, I have noticed an inclination to sneak a peak in the rear-view mirror of investment quite a lot in the media recently.
Indeed, I’ve just seen the Daily Mail … stop it, you’re judging me again. It’s a complementary copy in the departure lounge and the plane’s been delayed another 45 minutes. Anyway, as I was saying, the Mail rates this one company a good investment because it has tripled in value in recent months. Really? If you absolutely, positively have to tip shares, perhaps you could come up with a more logical and persuasive argument.
Back in 2003, when, of course, we should all have been buying Autonomy, the FSA was getting very agitated about the whole issue of past performance. The magazine I was editing at the time took a less absolutist view, arguing that past performance was not inherently evil but, rather than being the end of an investor’s research process, would instead make a useful starting-off point.
I am not certain why people have begun to look in that rear-view mirror again – maybe they feel it has been a while since shares were heading up and they want to revel in the feeling – but, unless you happen to have access to a time machine, it is not a terribly sensible investment strategy. I may even ultimately be proved right – in hindsight.
Julian Marr is editorial director of marketing-hub.co.uk