Born yesterday, gone tomorrow?
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In some markets, investment experience can be a liability rather than an advantage. In recent years, the recklessness of young fund managers has been rewarded. But the tide is about to turn...
Nature, in her majesty, gives few advantages to old people. They are plagued by disease, pandering politicians and door-to-door fundraisers. Still, an old fellow doesn’t have to buy long-term insurance or top-quality carpeting; there’s no point in owning things that will last longer than he will. And here in London, if he looks decrepit enough, he can sometimes get a seat on the subway.
There are even some markets where investment experience is a liability, not an asset. Adam Smith (a nom de plume) wrote about the ‘Great Garbage Market’ of the late 1960s on Wall Street. Shares were such bad bargains that the old timers wouldn’t touch them. So, the wily graybeards hired youngsters – too naïve to know better – to run the funds. And the funds prospered… for a while. After 1968, Wall Street went down, in real terms, for the next 14 years.
The late 1990s too seemed to call for youth and witlessness, rather than age and sagacity. Who but a reckless neophyte would buy a dotcom with no earnings, no business plan, and no clue? Many people did. And then, they doubled their money as the silly thing soared! And who but a callow newcomer would buy un-built condos in Florida, expecting to flip them to a greater fool before the lights go on? Many people still do.
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But we laughed out loud at ourselves last week. MoneyWeek included a profile of a 32-year-old fund manager in London, said to be a “born stockpicker” (see A born stockerpicker with a wild approach). Yes, born yesterday. He was only eight years old when the last bull market in shares began. He was only 12 when Alan Greenspan took over at the Fed. He was only 16 when the Japanese market started to tank. And he was only 18 when George Bush the elder vomited on the Japanese prime minister.
Still, his fund has gone up nearly 150% in the last three years. You can’t argue with success, can you? “Investors could be forgiven for thinking that their money would be better placed with a more experienced manager,” says the article, with so much understatement it practically disappeared between the floorboards. But when we raised the issue with the staff writer, he protested: “‘wait a minute, at 32 years old, he’s probably about average age for fund managers”. Oh la la… Which made us wonder: what kind of a market is this?
As usual, we don’t have an answer. But we have a feeling, which comes to us after missing lunch… or seeing James Ferguson's report on bond yields. Our feeling is that the long period of falling interest rates is over. For the next long period, money will be harder to come by; real rates will be headed higher; bubbles will be few and far between; and the codgers may finally get their chance to say ‘I told you so’.
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