Equities  

Readable contrarian viewpoints on investing

So I found Alastair Mundy’s You Say Tomayto: Contrarian Investing in Bitesize Pieces a breath of fresh air. It is, in effect, a collection of commentaries written over the last four years, covering Mr Mundy’s thoughts on investment markets, investment analysis and the financial industry as a whole.

Mr Mundy is well known as a contrarian investor, so it is not a surprise to find him on the very first page quoting John Maynard Keynes. “Worldly wisdom teaches that it is better for a reputation to fail conventionally than to succeed unconventionally”. Or, put another way, it is not the lemmings that tend to lose their jobs, but the person that stands out from the crowd. How true this is when you look at fund management. I only have to cast my mind back to the technology bubble in the late 1990s to observe how many fund managers caved in to conventional thinking. Those who did not, such as Neil Woodford, came close to losing their jobs.

I particularly enjoyed his piece on risk management, something dear to the hearts of the FSA and so many consultants. You wonder why, if this is the case, they are nearly always wrong. As Mr Mundy highlights, the main snag with all risk models is that they assume the previous combinations of circumstances will repeat. The trouble is while history often rhymes it does not necessarily repeat, which is why we have seen so many problems with investment products over the years. Endowments, precipice bonds and zeros have all presumed that stock market returns continue as they had done the previous ten years.

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Many advisers will recognise the problems that Mr Mundy talks about in trying to get stock market participants to actually participate in the market. I quote, “participants prefer to wait until things are less uncertain before committing funds or extra funds to the equity market”. How many times have you heard that from a client? Of course less uncertainty means better economic news and corporate results. By the time this happens the market has anticipated it and moved higher. Is it surprising then that so many clients do not fare well in stock markets? Unfortunately Mr Mundy has no answer for the problem other than the very obvious one of telling clients you only make money when things are uncertain. I remember the greatest time of certainty in my 30 years of investing was the summer of 1987. We all know what happened in the autumn of that year.

For both advisers and clients alike there are plenty of our own faults to recognise in this book. There is an excellent commentary on patience - or the lack of it. This is something I think has got worse in the last few years with clients prepared to ditch funds after three months if they have not performed. Alastair’s own holding period for stocks is more like three to five years not the industry average, which is less than six months nowadays.