The price of everything

Winning the wrong game

“An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” Thus did Benjamin Graham, the godfather of value investing, distinguish between the ‘business’ of investing and the ‘game’ of speculation. We don’t think Graham was casting moral judgments upon speculators, so much as simply trying to codify the nature of capital allocation and define some of the ground rules. We have no problem with shorter term speculation either, and indeed we incorporate it within our bespoke managed account  service in the form of systematic trend-following managers. We would argue that there are, in essence, only really two ways of attempting to secure enhanced returns versus the market itself with any reasonable chance of success: value investing, which we would define briefly as “obtaining superior cash flows cheaply”, and momentum investing, or exploiting the various price trends manifest in markets, but doing so without any concern as to underlying valuation during the process, albeit incorporating a defined algorithmic approach and a selection of standardised rules in the context of price evolution, position sizing and risk management. Pretty much everything else, we would argue, comes down to gambling.  

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Into the Twilight Zone

“The 2019 General Election threatened us with the prospect of a Big State socialist authoritarian who wanted to treat “our” NHS as a deity, shut down our liberties, and tank the economy. Unfortunately, he won.”

• The biggest disappointments of 2020. A tweet by @SirDanofC, 14^th August 2020.

“Bliss was it in that dawn to be alive..” Boris Johnson’s honeymoon period as the ‘surprise’ Brexit prime minister lasted for roughly three months. It began, with hindsight ominously enough, on Friday 13^th December 2019, and lasted until Imperial College released its infamous forecast on 16^th March 2020, of 250,000 Britons dying of Covid-19, after which the government abandoned any aspirational policy of herd immunity it might once have had – and decided simply to concentrate on destroying the economy instead. Since March and “the lockdown”, the honeymoon has soured into a bitterly dysfunctional divorce-in-the-making, a ‘game of chicken’-style tug of common sense between the Johnson government and the people, with Boris practically daring the electorate to vote him out of office as he deploys the very latest policies epitomising the acme of pointless, inconsistent, dangerous, counter-productive farce. The pantomime of hygiene that is mask-wearing is only the tip of the iceberg of Big Government (sunk costs fallacy) cretinocracy.

 

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The Quick and the Dead

Charles Zelmanovits was murdered in Piteå, Sweden in 1976. Johan Asplund was murdered in Sundsvall in 1980. Marinus and Jannie Stegehuis, a Dutch couple on a camping holiday, were murdered in Appojaure, Sweden in 1984. Yenon Levi, a tourist from Israel, was murdered in Rörshyttan, Sweden in 1988. Therese Johannesen was murdered in Drammen, Norway in 1988. Trine Jensen was murdered in Oslo in 1981. Gry Storvik was murdered in Oslo in 1985. All of these murders went unsolved until Sture Bergwall, who would subsequently change his name to Thomas Quick, confessed to every one them in the mid-1990s. He was convicted of all eight murders and would ultimately spend 20 years in a locked psychiatric clinic, Säter Hospital, which has been likened to a Swedish Broadmoor. Just one problem: he made everything up. This extraordinary story was made into a documentary film in 2015 – The Confessions of Thomas Quick.

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Hearts of glass

In his 1992 book The End of History and the Last Man, Francis Fukuyama argued that the fall of the Berlin Wall just a few years beforehand marked the definitive end point of any rivals to ‘enlightened’ Western liberal democracy. Eight years later, Robert Shiller in his analysis of 2000 era stock markets, Irrational Exuberance, cited widespread investor pride at the apparent triumph of free market western capitalism against all comers as one of the defining factors behind stretched millennial era stock valuations. Both of those narratives look somewhat ridiculous now. According to the Bureau of Economic Analysis, US second quarter GDP in 2020 fell by an annualised 32.9 percent. To put that figure into context, that is broadly the equivalent of the first three years’ worth of the Great Depression accelerated into just three months. That slowdown is almost entirely a real world reflection of deliberate government action – if you can even call it that. This correspondent normally finds little common ground with most writers at The Financial Times, but it is difficult to argue with their US editor, Edward Luce, when he suggests that

We are witnessing the biggest governance failure in modern US history.

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