There’s a lovely line in The Greatest Showman (our family’s current favourite film). Accused of being a fraud selling nothing but fakes by a humourless journalist(!), PT Barnum responds: “Men suffer more from imagining too little than too much”. The original quote is a little more cumbersome: “Persons, on the whole, are humbugged by believing in nothing, than by believing too much”. It’s a criticism you could easily turn on many of today’s investors.
This week, you’ll find John advocating value investing, Bill rejecting the romance of owning a stately home in Ireland and Max King and I both backing a firmly contrarian investment trust – which, today, means firmly rejecting much of the tech sector as airy-fairy and looking at banks and commodities instead. Are we all imagining too little?
I suspect not. Bill’s lack of interest in buying a ruin doesn’t mean he doesn’t think they look great – just that they are nicer to look at (and bed and breakfast in) than to own. The same goes for us and many of the more expensive companies on the market. In my conversation with Alasdair McKinnon, he talks about the bizarre business models of today’s well-known firms – in which they subordinate revenue and profits to the pursuit of market share, with the idea that once they dominate their sector, profits will follow. That won’t necessarily happen, he says.
First, governments, quite rightly, hate monopolies and will step in with a slew of trying regulation that will cap (or prevent) the huge payback investors expect. Second, cheap money won’t last forever – as interest rates and thus opportunity costs rise, investors may be less inclined to invest on imagination alone. Readers might be better, then, to look at these firms in the same way that Bill’s wife Elizabeth is trying to make him feel about vast houses.
We should thank their shareholders for stumping up the cash to keep the show on the road, and take advantage of their cheap products for as long as we can. So get a Tesla (there is a good-looking seven-seater in this week’s magazine); get value from Amazon Prime by ordering compost with free delivery; and watch as much Netflix content as you can at today’s prices.
The latter, as John Authers notes in the Financial Times, gives its clients a service they love. But it also has negative cash flow and a price-to-earnings ratio of 230. Do you want to own that, or a nice Japanese bank with more cash on its balance sheet than it knows what to do with? Perhaps the real triumph of imagination is to be able to set aside your prejudices about Japanese finance and take the latter. (Matthew Lynn doesn’t agree!)
Finally, on the matter of imagination, turn to this week’s cover story. The accepted view on population growth is that it is a very bad thing. It doesn’t have to be (and the world’s period of very fast population growth is almost over anyway) – Alice Gråhns explains why.