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1. GETTING PERSPECTIVE ON THE STATE OF THE WORLD

 


Our fears are always more numerous than our dangers.`
— Lucius Annaeus Seneca
Roman Philosopher (c.4 BC-65 AD)


 

Fanciful Guesswork

Regular readers of Gone to the Dogs will be familiar with my scepticism regarding forecasting ability or skill. The short version of my argument is that we display little or no ability to forecast with any degree of reliability. Despite this, many investment decisions - ranging from tactical asset allocation through to stock selection - rest on a foundation of economic, market and company forecasts.

 


Some people say they want to wait for a clearer view of the future. But when the future is again clear, the present bargains will have vanished. In fact, does anyone think that today’s prices will prevail once full confidence has been restored?

Dean Witter (May 1932)

 


"Monsters are real, and ghosts are real too. They live inside us and sometimes they win."
Stephen King

John Maynard Keynes was one of the most influential economists of the twentieth century and a highly successful investor. However, he came close to being wiped out by the stock market crash of 1929. Yet, through disciplined application of his contrarian approach, Keynes soon recouped his position and went on to build a substantial private fortune. From this experience Keynes has given us insights into some of the key principles that stand behind successful investing.

… it takes patience, discipline and courage to follow the contrarian route to investment success. To buy when others are despondently selling, to sell when others are avidly buying ...

Sir John Templeton

FROM WHERE WE STAND

The mood in South Africa currently is overwhelmed by the depressed sentiment that has arisen in the country since the middle of last year.

In the 9 June edition of Fortune, Carol J. Loomis reports that Warren Buffett has placed a bet against a New York City-based hedge fund of funds manager that the S&P 500 will outperform a professionally selected collection of hedge funds over the next ten years.

Loomis’ article is reproduced below. Although Buffett puts his odds of winning at 60 percent, this strikes me as him being conventionally conservative.

VALUE VERSUS GROWTH: THE EVIDENCE

Active investment managers belong to one of two philosophical camps, namely the value school or growth school. Each stance has it strengths and weakness.

The growth philosophy, for instance, runs the risk that blue sky potential does not materialise or that high growth environments disappear faster than anticipated. An example of strength in growth investing resides in the powerful upside available where great companies are identified early, as was the case with DiData in the late 1980s until 2000.

What do you mean "Own Goal"?

During times of market volatility, it often is the case that investors and investment managers are tempted to do something to cater for the turbulence, as opposed to sitting on their hands and riding the situation out. Indeed, human instinct is based on the argument that if one acts (which actually is reaction under these conditions) then one asserts control.