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Investment view

It is a murky crystal ball into which we, who seek to divine the likely

direction of markets, gaze as 2003 sets out on its uncertain path. A year

ago, buoyed no doubt by the bounce in markets during the last quarter of

2001, many of us predicted a positive outturn for 2002. How wrong we all


While the weight of opinion still rests with those who consider a fourth

year of falling share prices unlikely, there are some doom merchants

around, while the extent of any recovery is generally reckoned to be

modest. Seldom have I seen such caution expressed unanimously. With war in

the Middle East looking increasingly likely, no end in sight for the war

against terrorism, increasing tension surrounding North Korea and pension

woes contributing to more newspaper stories than I care to think about,

caution is the least of the reactions that might be expected.

Even the Prime Minister was downbeat in his address to the nation on the

prospects for the year ahead. It is clearly time to seek reasons to be


Perhaps the most positive aspect of the present situation is the measure of

agreement on the tough nature of the times ahead. If I have learned one

thing in the years I have worked in this industry, it is that the crowd is

usually wrong. Investment remains as much art as science and, the greater

the consensus on what is likely to happen, the better the chance of

disappointment – or of a pleasant surprise for that matter. Add to that the

fact that many forecasters are clearly chastened by wrongly predicting the

turn several times previously and you can imagine a situation where the

eventual outcome is better than anyone dared hope or, perhaps more

accurately, dared express as an opinion.

Remember, it was possible to make money in investment assets last year.

Aside from one or two able stockpickers demonstrating that, even in a bear

market, some shares deliver positive returns, gold, oil, gilt-edged

securities and both commercial and residential property went up in value.

The problem has been more that the Anglo Saxon investing world has placed

far too much stress on equities in the asset mix rather than just the fact

that this is turning out to be one of the longest bear markets on record.

Future investment planning seems certain to take more account of the wider

range of financial assets available.

We should take comfort, too, from the valuation levels regained as a

consequence of this prolonged bear market. In the UK, we look to be close

to the long-term average which, while it does not protect us from further

falls in share prices, at least creates an environment where market

setbacks could encourage bargain hunting. The situation on the other side

of the Atlantic is less clear but even there the relative weakness of the

dollar should help rather than hinder economic recovery and the scope this

would provide for a rebound in corporate profitability may redress its

valuation problems.

But we should not forget that the world has changed. The changes have not

been sudden – not the consequence of a single swift event like the

terrorist attacks in September 2001. It is the recognition of change that

has taken place quickly. The changes wrought by the information technology

revolution, by the massive improvement in global communications, by the

greater longevity of the human race – all these have been steadily creating

a very different world than that which existed little more then a

generation ago. Demographic change, as one example, should have triggered

alarm bells for decades, yet it is only now that debate is engaged at a

serious level – no doubt as a consequence of the bear market undermining


The truth is that we all allow ourselves to be lulled into a false sense of

security when things are going right. Of course, people are living longer

but rising stockmarkets will pay the bill. All the while, though, forces

beyond the control of mere governments were at work creating a more

difficult and treacherous operating environment. Improved communications

bring advantages to many but at the same time make apparent the imbalances

that exist between wealthy and poor nations. The microchip delivers more

information increasingly swiftly but exposes operating inefficiencies or

drives companies to change direction faster. No wonder stock-specific risk

has risen. No wonder caution is the watchword. A happy new year – please –

to us all.


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