There are no rules in investing, actually
I recently watched the romantic comedy Love Actually for the first time since its release in 2003. Always an odd take on the genre, the film has aged badly.
Seen through today’s lens, its portrayal of sex and love is what we now call ‘problematic’. It condones stalking, celebrates the mute objectification of women, and its political hero shuffles away a victim of workplace harassment – and that’s barely scratching the surface.
The tentative romance of naked body doubles Martin Freeman and Joanna Page – dark comedy 15 years ago – shine as the movie’s only truly loveable relationship. While we’ll probably always have a nostalgic soft spot for its saccharine panache, it’s hard to imagine Love Actually being made in the post-#metoo era.
Isn’t it remarkable that 3,000 years after Homer’s Illiad and the pursuit of Helen of Troy, we’re still reworking the rules of attraction?
And isn’t it even more surprising (pay attention here and you’ll see the magic happen) that in such a shifting world some people talk about the ‘Rules of Investing’?
As if investing and markets weren’t at least as fickle as the mores of the human heart.
Nothing lasts forever
Of course, there’s not a vast history of investing movies you can watch over Christmas in the same way as you can immerse yourself in the changing story of boy meets girl.
There’s the underrated Margin Call from a decade ago, Wall Street from the 1980s, and It’s a Wonderful Life with its 1930s bank run. And that’s about it.
All have essentially the same message – greed leads to ruin – even if the haircuts and suits do change over the eras.
But is investing really so much more steadfast than sexual politics?
I’m not convinced. It’s pretty easy to think of things we investors once believed until death and our portfolios did us part – but that turned out not to be true.
For example:
Bank runs wouldn’t happen in Britain – but then came Northern Rock.
Big US investment banks couldn’t fail – but then Lehman Brothers failed.
We would never see negative yields on US Treasuries – but then we did.
Equities will beat bonds over the long-term – but in the 20 years to 2015, super-safe gilts actually outperformed.
Okay, so those are all fairly recent examples, and they’re all related to the financial crisis. But certainties have been confounded before in investing history.
For example, it was once believed shares should always yield more than bonds, to compensate for the fact shares were more risky.
However in the middle of the last century, a growing body of academic work turned this thinking on its head.
As a result pension funds began to load up on equities, and their yields fell below bonds – and generally stayed there for many years.
In fact by the time I got interested in investing, it was expected shares would yield less than bonds – and if they didn’t, that was seen as a signal to buy the market.
Yet things may have changed again. The yield on UK shares has been higher than that of 10-year UK government bonds for years now.
Will it persist? Who knows – but anything that shifts back and forth like this certainly isn’t an ironclad law!
Indeed even the single most cherished tenant of long-term investors like us at the Fool – that markets always bounce back from crashes in time – has contradictions in history.
Most notably, the Japanese market has not yet got close to returning to the peak it hit in 1989 before it suffered an almighty plunge.
That was nearly 30 years ago. A worry precedent for those of us who first saw the FTSE 100 approach its current level in the late 1990s…
Any human heart
There’s one scene in Love Actually that does still ring true, and that’s the montage of dozens of real-life arrival gate reunions at Heathrow.
Because while ‘we’ as a society may be having difficult conversations and making necessary adjustments as to how we should best treat each other, millions of real people still fall in and out of love every day, just as they have for thousands of years.
You just can’t keep human emotions down.
And that brings me to the one thing I truly do believe is unchanging in investing.
Which is that no matter how automated investing becomes, how far algorithms replace human traders and index funds replace active ones, I think the big moves in the market will always be subject to the ebbs, swells – and the odd storm surge – of fear and greed.
Why?
Same reason. You just can’t keep human emotions down.
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