Die Hard, with a vengeance

“Money is like manure. You have to spread it around or it smells.”

 

-       J. Paul Getty.

When it comes to dying hard, the cult of equities has few peers. You might have thought that the dotcom bust, the Enron / Worldcom scandals, the recent cascade of banking crises and the current widening stagflation would have beaten equity investors into some kind of sense of submission or at least acceptance by now. Not a bit of it. Notwithstanding the fact that global equity markets, as defined by the MSCI World Equity Index, are currently 22% below their level at the start of 2000, let alone a third below their highs of Q3 2007, the investment media continue breathlessly to report their every move. One can only conclude either that the modern equity investor is a glutton for punishment, or that the modern media producer is a sadist. The average radio or TV business report, if it offers any coverage of markets whatsoever, will tend to focus exclusively on the performance of equity indices. Even interest rates, for example, barely get a look in. Open a typical newspaper, journal or even financial magazine, and see how much coverage – if any – is given to any other asset class than common stocks. For that matter, consider how much focus the fund management industry (retail or institutional) places upon equity vehicles as opposed to any other. While many (funds) may be launched whereas few will ultimately be chosen, it represents a real triumph of marketing over relevance to continue to peddle products that few consumers are likely to need, let alone want. The financial services industry surely attained critical mass by way of long-only equity variety years ago – and the growth of exchange-traded funds has not exactly diminished choice. It is testimony to the lingering attraction of the equity myth that it continues to this day to drive the production of redundant product by an endless array of me-too providers.  Of course not all funds are bad, and not all equity funds are bad; but the signal to noise ratio, given the population of the managed fund universe, has to be low. Most critically, in the context of managed funds, know what you own – which will take some of the sting out of any exposure to managed equities in the context of a potential bear market.

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