While staying in Ludlow, Shropshire, for a few days recently, my wife and I took the opportunity to visit the town’s exceptionally pretty racecourse and immerse ourselves in the ‘Sport of Kings’ for the afternoon.
Race days rarely disappoint, provided you’ve allowed for the strong probability of losing a few quid to the on-course bookmakers and counted these losses as integral to the day’s cost.
All seven of Ludlow’s races were over either hurdles or fences, obstacles which add to the amateur punter’s difficulty when it comes to selecting a winner. Yet as part of a race day’s excitement is enjoying a modest punt, you have to believe you’re suddenly capable of identifying the horse most likely to romp to victory.
Programme notes can be supplemented with up-to-date information gleaned from a mobile device; you can watch the jockeys as they chat among themselves; see how impressive a ride looks as it’s led around the parade ring; keep an eye on price movements chalked up by the bookies; observe confident-looking owners sharing a joke and scrutinise the runners as they gallop down to the starting post.
Yet despite absorbing this wealth of hard evidence, or so you think, as you walk across to the paddock to place your bet, the truth is you’re having a bit of fun: no-one can be 100% certain they’ve backed a winner.
Fortunately, we just about broke even over the afternoon – a euphemism for saying our aggregate losses never exceeded £25 – after cheering home two winners, although we never threatened bookies’ profits.
If no-one can consistently predict how a 7-horse race will unfold, what chance do we have of forecasting stock market performance over the next 12 months following the most significant social, political and economic upheaval most of us have ever witnessed?
Will we see a continued rise in the value of stock markets as has been the case (so far) this year?
Between late January and the end of November, the FTSE100 rose by around 17% and seemed set to carry on in similar vein until news arrived of yet another Covid-19 variant. Though it was almost immediately declared ‘less worrying’ than the delta variant by Professor Chris Whitty, some jittery investors opted to head for the hills, causing the FTSE100 to tumble by more than 4.5%.
Four-and-a-half percent doesn’t sound much, but for someone with a pension pot worth £150,000, it equates to a paper loss of
£6,900; a similar permanent fall in value would result in the owner of a £250,000 pension pot suffering ‘losses’ of £11,500.
Thankfully, between 26 November and 8 December, London’s main market recovered by 4.4%, but the temporary setback, during which the travel industry’s usual suspects (EasyJet, BA, Carnival Cruises, TUI etc) bore the full force of the market’s volatility, reiterated the point that past performance is no guarantee of future success.
Indeed, since March 2020 guarantees in any walk of life have been difficult to come by and it appears likely that the pandemic will continue to dominate our lives until the vaccination programme is complete. If there is one thing we can predict with a fair level of certainty, it’s that an annual Covid-19 booster jab will become the norm for the foreseeable future.
As the pandemic’s impact (hopefully) recedes next year, perhaps the most significant short term economic threat is inflation.
Evidence of inflation’s corrosive nature can be seen everywhere: from petrol pump to supermarket; DIY store to online retailers. Prices of many goods are rising and, as we’re suffering from a short term labour shortage, wage costs are also on the up. Analysts at City firm Peel Hunt suggest that inflation will hit 3.8% by mid-2022 before gradually drifting back down to 2.5% by 2025.
Theoretically, rising inflation is good news for the price of gold – although this becomes less predictable if the US dollar remains strong (which it does) and share prices remain robust (see above). As if to prove the point, consider the spot price of gold on December 1 2020 ($1,788) and on November 29 2021 ($1,788): over the last 12 months, gold’s value hasn’t budged.
Will 2022 be the year we see another investment ‘theme’ come to the fore in the manner of ESG? Perhaps not, but so-called ‘green’ investing is likely to remain popular with investors. Will we see any evidence of the economy ‘building back better’? Don’t hold your breath. Will we be in a position to start tackling the gargantuan debt we’ve accumulated over the past two years? Highly unlikely.
Investors opting to stick with the stock market should, therefore, take note of economist Chris Dillow’s wise words. Writing in Investors’ Chronicle recently, Mr Dillow opined: “Successful investing doesn’t require great intellect or even hard work. What it requires are character skills such as self-awareness, discipline and detachment.”
Not too different to backing a winner at Ludlow then.
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