10 Years On: Hindsight investing
LET’S start from a different place. Let’s talk about your attitude to property and whether you (as most people would) regard it as a long-term investment, as opposed to something merely to live in? And let’s try to think back to 2008 and what your thoughts would have been from your perspective as a Guernsey resident. I say this because I have no doubt that if you were on the Guernsey property market ladder in the run-up to 2008, you’d have been a very happy ‘investor’. It was virtually a one-way bet with prices rising year after year and, regardless of whether you were a long-term or a short-term ‘investor’, life was good. So, if I’d offered you a ‘AAA-rated’ investment based on property (albeit in the US) with a high-risk/high-reward kicker on the side, what could possibly have gone wrong?
As it turns out, almost everything. Yield-hungry investors seeking returns in the longest-running low-interest-rate economy in modern history didn’t do their due diligence and got taken to the cleaners. Followed shortly afterwards by the biggest financial crisis since the 1930s, otherwise known as the Great Recession.
Hindsight investing, which is what the title of this article is seeking, is a very easy game. The trick is having the courage of your convictions at the time: the challenge of choosing to invest while your metaphorical house is burning down around you and all seems lost. If you had the means to be an investor in 2008/9, you will recall that few were worrying, to use the well-worn cliche, about the return on their money; instead, they were more anxious about the return of their money. This while Northern Rock went bust and HBOS was taken over by Lloyds TSB (both bailed out by the UK government). For something closer to home, recall Landsbanki.
Where should you have had your money? Does the acronym FAANG strike a chord? Given their influence in your lives, it probably should. Facebook, Amazon, Apple, Netflix and Google (there are, of course, others, but this handy quintet is a neat proxy for their technological peers) have grown into all-conquering behemoths in the last 10 years.
Had you invested £25,000 into the AANG (Facebook was a private company until 2012) on an equal-weight basis 10 years ago, and then included Facebook when it IPO’d, your investment would be worth over £624,000 today – an incredible 2,400% return.
These returns dwarf anything investors would have been able to attain through any other type of index tracker. Take, for example, the iShare MSCI World, a cheap way to gain general index exposure. Investors would have earned about 94% over the same timeframe. Yet even this return would not have been possible had it not been for the influence of the FAANG.
But don’t beat yourselves up too much, it would have taken some leap of faith to have bought into these companies a decade ago. Amazon was still principally an e-tailer with no profit margin, but had started to branch out into a thing called ‘cloud computing’. Google had just launched its Chrome browser – a product only made possible thanks to Microsoft losing an anti-trust law suit against the Department of Justice, and which opened up the internet browser market. Meanwhile, Netflix was experimenting with video on demand over the internet. Not to mention the fact that the notion of FAANG (or FANG as it was first known) wasn’t even part of the investor psyche until 2013 when ranting CNBC stock-pundit Jim Cramer coined the term during his show Mad Money.
Coincidentally, 10 years just happens to be the length of time since we launched what is now Ravenscroft’s investment management team. Given the global financial calamity that struck just 10 days after we started, it really wasn’t an ideal time to launch a business; but it has meant that we have gained real insight into what it takes to start, nurture and grow (and thrive) in such an environment. Most importantly, we have honed, re-honed and then tested and re-tested our due diligence and investment processes to the point where we almost bore ourselves with the monotony of the message: know what you own and why you own it. Why? Because, as the massive collapse in the US property market showed, there is no such thing as a free lunch – if it looks too good to be true, it is. If a product offers two to three times the return of the market with no demonstrable reason as to why, then it’s bogus.
The paradox of a long-term investment strategy is that you buy more when the market goes down because you see (and intrinsically understand) the value. This is perhaps the hardest thing to do in a market panic. On the other hand, if you’ve done your homework, as we do every day on behalf of our clients, you’ll be sleeping like a baby while the fire alarms are going off all around you.
