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Investment view

Markets have had plenty to contend with. Certainly no one could accuse recent weeks of being boring. Enronitis has become the latest disease to grip investors. Nigh on 20 years of progress in the Japanese market were consigned to history when the Nikkei Dow fell below the Dow Jones Industrial Average for the first time in 18 years.

And, as we paused for breath, it turned out that the Nick Leeson fan club was alive and well living in Baltimore. More of the Allied Irish Bank&#39s US subsidiary saga has yet to unfold but it does not seem as though it was the short-term pressure to perform and underwrite those phone-number bonuses that was at fault in this instance.

It is not fanciful to mention Enron and Allied Irish Bank in the same paragraph. The complexity of financial instruments has reinforced the need to be vigilant when it comes to examining company books, whether you are an investor or a manager of the business. Event risk, as it is becoming known, looks like featuring more regularly. This will not make investors feel any more confident.

It was with a degree of relief that saw me arrive – late as ever – at Capital International&#39s fifth client seminar in London last week.

For those not familiar with the Capital Group, it is an American fund management business, privately owned (like Fidelity, but in this case by the management), looking after more money than is decent to mention in an article directed at UK advisers.

It has a clear bias towards investing in equities. Among the things I learned last week was that it does not employ a chief investment officer and has no global overview of the market.

This, in its opinion, means it is able to avoid the big mistakes made by investment houses when they pin their hopes on wrongly anticipated economic trends.

Capital is a “bottom-up” specialist. It is a stockpicker,relying on a heavy research effort to ensure that it finds the right stocks to pick. That said, the conference chairman admitted that this is a business where, if you only make mistakes 40 per cent of the time, you are winning. Candidly, make six right decisions out of 10 in this stockmarket and you are not just winning – you are ahead of the field by a furlong.

In this country, Capital does not make its funds available to the retail market although private investors can have access to them through a number of multi-manager options. US based, it now has tentacles that encircle the globe and its views on markets are always worth hearing. Strangely, they were not as downbeat as I expected.

Take media, the focus of one of the presentations it gave. Situated at the heart of the new economy sectors, you might have thought that media had delivered value attrition over the last two years.

Yet the point was made – supported by hard evidence – that media was such a diverse area that you could have made money, providing that you rotated your portfolio between the right stocks at the right time.

As the media analyst put it, it was all about owning different stocks at different times for different reasons. Great if you can get it right but this is where the 60 per cent success ratio comes in.

This was not a week when bulls felt as though they were in much of an ascendancy so the encouragement of Capital to continue backing equities was comforting.

At the Sofa chairman&#39s reception and at Lansons&#39 annual post-Christmas bash, I had plenty of opportunity to exchange views with others in the industry who are all finding conditions tough at present.

The Capital media analyst said this was the worst bear market in advertising since the war. The journalists I spoke to pointed to the shrinkage of financial coverage in newspapers due to a fall of advertising spend so it was clear that she had it absolutely spot on.

But, as always, there is a ray of sunshine to be glimpsed amid the gloom. Every time the FTSE100 dips towards 5,000, buyers emerge. Figures like this can prove important psychological barriers. It could be that we are building a floor. I hope it will prove to be a springboard from which to launch the next bull market. Do not expect it to be an easy ride, though.


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