Jonathan Davis | The Spectator Columnists & Writers

The ‘in’ and ‘out’ campaigns? Claptrap on both sides!

The ‘in’ and ‘out’ campaigns? Claptrap on both sides!

The ‘in’ and ‘out’ campaigns? Claptrap on both sides!

Is there a genuinely independent go-to guide for anyone who cares about the future of the UK economy but isn’t sure how to cast their vote in the Brexit referendum? Two-thirds of voters are said by unreliable pollsters to have made up their minds already, which leaves at least a third undecided. As the strident rhetoric and tendentious factoids of the two campaigns intensify, the need for dispassionate analysis could not be greater. So it seems a good time to take counsel from one of the City’s wisest greybeards. Rodney Leach — Lord Leach of Fairford — did as much as anyone, as a leader of Business for Sterling, to save us from the potential disaster of euro membership. Today, in addition to his day job as a director of Jardine Matheson, he’s the guiding light of the think tank Open Europe, which has been campaigning for effective reform in Brussels for the past decade.

The ‘in’ and ‘out’ campaigns? Claptrap on both sides!

Investment special: Springtime for stockbrokers

Investment special: Springtime for stockbrokers

Investment special: Springtime for stockbrokers

You know you’re in a bull market when bad news is simply shrugged aside and even the most indifferent events are greeted exuberantly. The result of February’s Italian general election, which drags the future of the eurozone back into question, would have induced market panic had it come nine months ago. But the world’s equity markets barely blinked before resuming an attempt to breach all-time peaks. Something similar happened last week when the US Congress failed to agree how to avoid the package of mandatory spending cuts known as ‘the sequester’. When Republicans and Democrats came up with these cuts in 2011, they were so potentially damaging it was unthinkable that any party could actually contemplate allowing them to come into force.

Investment special: Springtime for stockbrokers

Markets love lame ducks

Markets love lame ducks

Markets love lame ducks

Next week’s too-close-to-call US presidential election must make a big difference to the way stock and bond markets perform over the next few years — or so you might think. Yet experience suggests that investors should probably stifle a yawn rather than place too much significance on whether Obama or Romney comes out ahead. In practice, markets rarely assign as much importance to the outcome as politicians and their supporters think they should. For this there are some sound historical reasons. One is that hardly any politician ever succeeds in implementing everything he or she has promised in order to get elected. In the United States, the ability to deliver on promises is additionally constrained by occupants of the White House having to work with a Congress that is often of the opposing political persuasion.

Markets love lame ducks

Profit among the ruins

Profit among the ruins

Profit among the ruins

The place to look for investment bargains, said the fund manager Sir John Templeton, is not where the news is good, but where it is really bad. Today that means looking for advantage amid the volatility and extreme valuations which the crisis in the embattled eurozone has brought in its wake. The strikes and riots that are spreading across southern Europe are exactly the kind of scary scenario in which investors with ice-cold blood in their veins, as one admirer once described Templeton, have historically been able to profit. Since June, the broad European stock market index has risen by 11 per cent, reversing the losses of the previous three months. Yet the Athens market, which has lost four-fifths of its value since 2007, is up by almost 60 per cent from its low point this year as fears of imminent Greek exit from the euro have receded.

Profit among the ruins

Investment Special: Contrarianism pays

Investment Special: Contrarianism pays

When pessimism prevails, it’s probably time to buyIf one thing puzzles private investors more than anything else, it is the extraordinary capacity of the stock market to move in ways that appear to follow no discernible logic. ‘Profits Up, Shares Tumble’, or even ‘World War Declared, Stocks Rise’: such headlines understandably confuse the uninitiated. But in reality there’s nothing strange about this pattern of behaviour, and understanding it explains why being a contrarian — going against the thrust of expert professional opinion — is so often the key to the greatest investment success.The reason markets often move in mysterious ways is that in any well-functioning market, prices are set to anticipate future changes, not to pass judgment on the status quo.

Investment special: Be very afraid

Investment special: Be very afraid

In The Fear Index, the latest thriller by Robert Harris, now heading for the Christmas bestseller lists, a brainbox hedge fund manager with little in the way of interpersonal skills discovers that his computer-driven trading system has flown out of control and threatens to send the world’s stock markets into a tailspin. Anyone familiar with Mary Shelley’s Dr Frankenstein will recognise the genre of the oddball genius consumed by his own creation — populist fiction at its best. But is it fiction? Not so fast, reader. As Harris makes clear in a footnote near the end of his novel, the market meltdown which Dr Alex Hoffmann’s trading system appears to have prompted in The Fear Index is one that actually happened. A ‘flash crash’ on 6 May 2010 sent US stockmarket indices tumbling by more than 9 per cent in 15 minutes, causing short-term panic.

Investment Special: Bottom fishing

Investment Special: Bottom fishing

Here’s the good news. Share prices are falling. Investors are panicking. Talk of crisis dominates the headlines. These are precisely the conditions in which bargains tend to become available on the stock market. Just as history is written by the victors, so the day-to-day stock-market narrative is written from the perspective of those with most to lose: those who already have wealth, not those who need it in the future. Yet when it comes to investment, as all great investors know, what matters most is how cheaply you can buy, not whether the market is going up or down around the time you do so. The younger you are, the more of your working life that lies ahead, the better a good stock-market disaster is for the value of your savings when you will finally need them, which is typically many years ahead.

INVESTMENT SPECIAL: Anything but gilts

INVESTMENT SPECIAL: Anything but gilts

In search of the next ‘trade of the decade’Imagine you were sitting in St Paul’s at the 1981 royal wedding, waiting for the mismatched bridal couple to arrive and idly speculating about the best way to save up for a wedding present for their first-born, a generation hence. The odds are you would not have given much thought to British government stock, or gilts, as the investment of choice. At the time, gilts had become a pariah of the financial markets, shunned by anyone who had followed their calamitous decline in value over the postwar period. Inflation is the great enemy of bonds, and so great was the loss of faith in UK government debt as a store of value in the face of the country’s continued economic incontinence that in 1981 most issued gilts were trading at 40 per cent or less of their face value.

INVESTMENT SPECIAL: This time he’s playing for keeps

INVESTMENT SPECIAL: This time he’s playing for keeps

For the outspoken Terry Smith, successful investing means never having to say ‘sell’Terry Smith’s office is high up in Tower 42, formerly the NatWest tower, in Old Broad Street. It has a sweeping view over Docklands towards Essex, the neck of the woods with which he seems to be associated in the popular mind. This high-profile City figure’s image is that of a bruiser with attitude, who made good in the money markets through a series of ballsy deals and likes nothing better than a good scrap. On his new blog, Straight Talking, you can read his denunciations of Labour spending and the ‘myths’ about Osborne’s cuts, particularly as reported by the BBC. While Smith wins friends and enemies in equal numbers with his forthright opinions, his saving grace in the financial markets is that he does not flinch from facing reality.

INVESTMENT SPECIAL: Brazilian adventure

INVESTMENT SPECIAL: Brazilian adventure

INVESTMENT SPECIAL: Brazilian adventure

An intrepid investor’s response to the global food shortageEntrepreneurs are prone to imaginative recruitment, so when the invitation to pack my bags for Buenos Aires came through, it should not perhaps have taken me by surprise. I have known Jim Slater, the veteran investor-entrepreneur, for several years. We meet periodically to discuss the stock market or play bridge. But the idea that I might join forces with him to go scouting for farmland in South America was not something that had crossed my mind. It turned out, however, that Jim and his business partner Ian Watson were in the process of liquidating one of their ventures, a listed mining business called Galahad Gold, and were looking to repeat its success in agriculture — which they, in common with George Soros, Lord Rothschild and a number of other smart investors, believed would be the ‘next big thing’.

INVESTMENT SPECIAL: Brazilian adventure

Trying not to be too clever

Trying not to be too clever

Trying not to be too clever

Before he became one of London’s most admired fund managers, Jonathan Ruffer had, by his own account, two spectacularly unsuccessful spells as a barrister. Not long into our interview, I gain a clue as to why this seemingly harsh self-assessment might be true. We’re discussing the credit crunch, which he predicted well before it hit, and policymakers’ responses to it. Ruffer is explaining where the Japanese went wrong 20 years ago when their economy first showed signs of slumping into debt deflation, from which it has still fully to recover. ‘So what you’re saying they should have done is …’ I prompt, not certain that readers would follow Ruffer’s meaning to this point. ‘Borrowed more money. Devalued the currency,’ he replies.

Trying not to be too clever

Time to invest in the UK again — or to spread your money abroad?

Time to invest in the UK again — or to spread your money abroad?

Time to invest in the UK again — or to spread your money abroad?

Jonathan Davis thinks this week’s Budget will prove positive for British investors, but that it’s increasingly important to take a global view of markets and currenciesThere was nothing in George Osborne’s emergency Budget on Tuesday to contradict the idea that the transition from Labour to Conservative (or in this case Conservative-led) governments tends to be good for the investing classes. The fall of the Callaghan government in 1979 was followed after an initial period of uncertainty by the start of an 18-year bull market that was resilient enough to survive two nasty recessions, the 1987 crash and our undignified exit from the ERM in 1992. There were similar bull markets for shares in the mid-1930s, following the formation of a Conservative-dominated National Government, and in the Eden-Macmillan years in the 1950s.

Time to invest in the UK again — or to spread your money abroad?

Is now the time to buy back into China?

Is now the time to buy back into China?

Is now the time to buy back into China?

One tried and tested rule in investment is that the bigger and more widely shared the worry, the less likely it is to be realised. Remember Y2K and the Sars epidemic? Both produced warnings of global disaster. Neither turned out to be anything like the threat that doomsters had predicted. Contrast that with the subprime mortgage crisis, whose dimensions only became widely apparent some time after the crisis had already broken. In the years when investors should have been worrying about uncontrolled bank lending, most were too busy loading up on anything they could buy with cheap credit to notice the impending disaster that their own insouciance was helping to bring about. On this measure, if nothing else, investors looking at China today should not have much to worry about.

Is now the time to buy back into China?

A masterclass with the adventure capitalist

A masterclass with the adventure capitalist

Jonathan Davis talks to globetrotting investment guru Jim Rogers about the bull market in commodities, China’s rise to superpower status — and how America lost the plot‘What do they know of England who only England know?’ Kipling’s question, with its powerful message that true knowledge of a locality can only come with the perspective that foreign travel provides, has important echoes for the modern investor. In today’s global markets, virtually no overseas country is closed to the armchair investor. In less than a minute at the computer, you can buy an index fund that tracks the performance of the stock market in Korea, Brazil or even Kazakhstan, or shares in the largest companies in Turkey, South Africa or Ecuador.

Spend more time in the library

Spend more time in the library

Spend more time in the library

Where do most investors go wrong in making their investment decisions? Warren Buffett, whom many like to think of as the world’s most successful stock market investor, has no doubts. People need to spend more time with their nose in a book, thinking about the way the world works, and less time looking at the price of the shares that they own. Buffett has long since moved on from buying individual shares to buying whole companies, but the way he spends his time has not changed much in the 50 years he has been a professional investor. One day a couple of years ago, he received a faxed letter about a company he had never heard of. He liked what he saw. ‘The next day,’ reported the Wall Street Journal, ‘Mr Buffett offered to buy Forest River.

Spend more time in the library

Argentina has what the world wants — and may soon have a woman in charge

Argentina has what the world wants — and may soon have a woman in charge

In Washington, the campaign to put another Clinton in the White House is well underway. In Argentina, the next president could also be the wife of a man who has held the highest office before. President Néstor Kirchner, who grabbed the top job four years ago after polling just 22 per cent of the vote in the first round against a discredited Carlos Menem, comes up for re-election in October. As the deadline for nominations approached, it was always certain that a Kirchner would run. But would it be the President or his wife Cristina? For months, rumours circulated that Kirchner, who is said to have health problems, might stand aside and allow his missus to go for the job. This being Argentina, where Perón and his two wives remain controversial figures, the idea of an attractive, politically savvy woman taking power has inevitably excited intense debate.

Oxbridge investors fail to win glittering prizes

Oxbridge investors fail to win glittering prizes

Jonathan Davis says that if Britain’s ancient universities want to remain world-class, they should take tutorials from Harvard and Yale in how to invest their endowmentsDevotees of the diaries of Harold Nicolson and Alan Clark will feel that they know the cramped apartments at the Albany in Piccadilly as a vicarious second home. It was there that both men would repair after dining and gossiping in clubland; there also, the reader is led to assume, that their extramarital assignations would be consummated. But how many of the millions who pass the Piccadilly entrance to the Albany have ever stopped to wonder who owns the elegant building in which these famous bachelor sets are located? The answer, it turns out, is Peterhouse, the oldest Cambridge college.

The risk of cataclysm has not gone away

The risk of cataclysm has not gone away

Even before the world’s stock markets had their latest wobble two weeks ago, an interesting debate was gaining currency at some lunch tables in the City. As always, the debate in the moneyed classes is primarily about risk. It’s only those without money who spend their time worrying about beating the market and making the most out of any investment opportunity they can find. For those who have, discretion has always been the better part of value.The debate stems from the fact that risk, in its conventional financial sense, appears to have gone walkabout. The way most investment assets are priced these days, there appears to be barely a risk in the sky. Just about everything has been going up in price, and may well be going higher.

Toys for boys who play the markets

Toys for boys who play the markets

Twelve years ago, on a rainy afternoon when nothing much else seemed to be happening, I abandoned my desk in Canary Wharf for a few hours in order to track down a new and obscure betting operation somewhere off the Mile End Road. The managing director was a large, florid man in his late forties. He smoked a succession of fat cigars and looked the picture of ill-health. No medically-minded betting man would have offered better than evens on his survival into the new millennium.The business he ran belied his appearance however. The office, in a quiet cul-de-sac, was newly fitted out and spotlessly clean. The trading screens were impressively up-to-date and there was a buzz of excitement. It all pointed to the presence of serious money behind the operation — which, so my host hinted more than once, there was.

The perma-bear who sees the ice melting

The perma-bear who sees the ice melting

We’re barely ten seconds into our interview when Jeremy Grantham, one-time bedpan salesman from Doncaster, now hugely successful US money manager, is off on a favourite tack — mixing it with his competitors in the investment world. In this case what has drawn his ire are some reported comments from a well-known American fund manager whose views I have alluded to in a recent newspaper column.‘I’m going to start with an ad hominem remark,’ he announces down the line from Boston, his adopted home, where he has built from scratch a global fund management business that looks after more than $140 billion of other people’s money. The pundit in question, he says, ‘is the biggest historical revisionist around. Everything he said he has predicted is plain wrong.

The perils of insouciance

The perils of insouciance

Jonathan Davis says investors’ disregard for risk has paid off handsomely in 2006 — but it may not in 2007A good general rule for investors is to take no notice of consensus predictions about what is going to happen in the next 12 months. The track record of year-end investment punditry is consistently poor. That makes the Christmas and New Year period particularly hazardous for the unwary investor, as the demand for forecasts is at its peak, and the capacity for misdirection consequently also high.This is especially so for those who are not aware of J.K. Galbraith’s adage that economists forecast ‘not because they know, but because they are asked’. One professional investor of my acquaintance has turned forecasting folly into a source of insight.

Amaranth: how to lose $6 billion in a fortnight

Amaranth: how to lose $6 billion in a fortnight

Hedge funds, you read here in June, are often riskier than they are made out to be. Putting your money into ‘a fund that blows up, closes down or disappears with all your money’, I suggested, is a real risk for the unwary investor. The danger, I could have written, is that you will find your money being looked after by Brian Hunter, a 32-year-old energy trader from Calgary who last month single-handedly accounted for the largest hedge-fund meltdown since records began. In the space of two short weeks, Mr Hunter worked his way through some $6.5 billion when his complex strategy of forward bets on the price of natural gas went badly wrong, wiping out 70 per cent of the capital deployed by his hedge fund employers, Amaranth Advisors.

Happy birthday, index funds

Happy birthday, index funds

What has been the single most successful and socially useful investment innovation of the last 30 years? Although paradoxically few investors will know what it is, or why they should be grateful that it exists, my nomination is the index fund. On 31 August this year, largely unheralded in the media, this dull but remarkable invention celebrated its 30th year in existence.An index fund, also known colloquially as a tracker fund, is a fund that does nothing more exciting than set out to mimic the performance of one of the market indices that are regularly featured in media reports about the day’s events in the stock market. Most of us are attuned to hearing such names as the Dow Jones Industrial Average (the oldest Wall Street index) and the ‘Footsie’, or FTSE–100, which has been recording how London’s leading shares have moved since 1984.

Farewell to the Harry Potter of stock-picking

Farewell to the Harry Potter of stock-picking

Twenty-seven years ago, a shy 29-year-old engineering graduate from Cambridge University left his job as a trainee fund manager at an obscure South African investment company in London. In a move that some of his colleagues regarded as foolhardy, he had accepted an offer to join a little-known private American firm that had never sold an investment fund over here before, but thought that Britain under Margaret Thatcher — who had been elected just a few months earlier — might be a good place to try to break into the European investment market. At the time few people had any idea that this seemingly intemperate career move would help change the face of the funds business in Britain and launch Anthony Bolton, the unassuming individual in question, into arguably the most successful professional stock-market investment career that this country has yet produced.

Is this the peak of the bull market?

Is this the peak of the bull market?

Conventional wisdom in the investment world is that it is hard, if not impossible, to call the really important turns in the stock market. You will struggle to find a professional investor who admits to being any good at market timing, and even more so to find a finance professor who will do anything but deplore those who have the presumption to try. In Winning the Loser’s Game, his brilliant analysis of the investment business, the American consultant Charlie Ellis speaks for the wise when he counsels private investors, ‘Market timing is a sin. Don’t ever try it.’Warren Buffett agrees. The 24,000 shareholders who made the annual pilgrimage to Omaha, Nebraska two weeks ago to hear the great US investor discourse at his annual meeting, know not to expect him to pronounce on which way the stock market is heading next.