“If you put a thousand people in barrels and push them over Niagara Falls,” says a financial adviser in Portfolio magazine, “some of them will survive. And if you take those guys and push them over again, some of them will survive. And then they’ll write books about how to survive being pushed over Niagara Falls in a barrel.”
His point? That in many cases, success is nothing to do with skill and everything to do with luck.
And nowhere is that more the case than in the stockmarket, a place peopled by brokers, analysts and fund managers all working to convince us that they are somehow able to beat the market and all utterly incapable of doing any such thing.
As Jonathan Compton points out in our Roundtable this week, most so-called experts operate in a fog of confusion most of the time: making a series of correct predictions proves merely that they are lucky, rather than that they are clever.
However, every now and then, as Jonathan puts it, “the lights come on” and you get a clear view of exactly how things stand. Now might be one of those times.
We know that US house prices are still falling nastily (down 4.5% in the third quarter of 2007) and that as a result consumer confidence is at a two-year low. We know that the credit crunch is not over (losses are mounting and the money markets are locking up again). And we know that this means that money is getting harder and more expensive to borrow than it has been for many years. This in turn tells us that the glory days of the US consumer are over.
There should be no fog of confusion here: America has to cut back on its shopping, something that may well – if it has not already done so – push it into recession, and something that will definitely have knock on effects throughout the global economy.
Less clear, as ever, is exactly what investors should do about this. Most dedicated MoneyWeek readers will have sold out of banks, retailers and housebuilders long ago, so there is no point in us suggesting you do so now. Most will also have a good cash cushion and a pile of gold (you need this in both bullion and shares – see Dominic Frisby’s Money Morning article, Why you must own gold, not just gold miners to see why) and hopefully of silver too. So not much point in us going on about that either.
I imagine most of us probably have some exposure to the commodities supercycle by now as well. So what else? You could add a little Japan to the mix – as we pointed out last week, it is one of the only cheap markets out there. But beyond that, I think I’d be tempted to hang on to my cash.
Our Roundtable members have had a go at suggesting a few other possibilities. They all say they fancy the unloved telecoms companies for their solid yields and they are mildly enthusiastic about some pharmaceuticals. But during this week’s discussion, I got the distinct impression most of them would rather be pushed over Niagara Falls in a barrel than be forced to buy any shares with their own money.