Derek Pain: Hold on – it's not the end of the cult of equity just yet
No Pain, No Gain
Saturday 11 September 2010
Many alleged experts are taking the view that the cult of equity is dead. It is highly unlikely, they opine, that we will again experience the growth in share values that has occurred since the 1950s and a much more subdued atmosphere will envelop the stock market in the years ahead. I disagree. True, the next couple of years may prove difficult, but I remain convinced that long-term progress will be achieved and the stock market will remain a happy hunting ground for the legions of buy-and-hold investors.
Of course, hyperactive players are not greatly concerned whether the equity cult survives or not. They – hopefully – reap handsome rewards from their frequent trading, although the only sure winners are various City elements, pocketing charges, and the Government. But, for the buy-and-hold brigade, the future direction of shares is a vitally important issue.
It was a fund manager called George Ross-Goobey who in the years after the Second World War established what became known as the cult of equity. He conducted the pension fund of Imperial Tobacco and took the then-revolutionary decision to invest largely in shares rather than government stocks and fixed-interest bonds. His foresight was richly rewarded as equities embarked on their upward journey.
The City has changed dramatically since those days. Indeed, Imperial Chemical Industries (ICI), the leading company of the time and the then-bellwether of British industry, is no longer with us, having succumbed to a takeover bid in 2008.
I have been in and around the City for most of the equity-cult days. There have, of course, been some wounding setbacks. The early 1970s and the 1987 storm spring to mind. But despite violent retreats, shares have overall made spectacular progress, hitting a peak in the dotty.com madness at the turn of the century.
The simple fact that they have not achieved new highs since then, and are currently well below their record level, is one of the main planks of the doubters' argument. Low trading levels, many institutions reducing their equity content, and the strength of bonds and alternative investments, are other reasons offered. However, as I pointed out last week, equities are not without attractions, particularly on the yield front. And I bet old Ross-Goobey would still be enthusiastic.
The No Pain, No Gain portfolio is a buy-and-hold exercise. I am often accused of falling in love with a share and, consequently, failing to sell at signs of trouble. There is little doubt that I have retained shares when a more active investor would have sold. Sometimes, such an attitude has paid off; on other occasions, the suffering has been acute.
Buy-and-hold shareholders should be encouraged by some research carried out by the Bank of England. Andrew Haldane, a leading BoE man, believes the financial system has become increasingly impatient as modern developments – hedge funds and so on – have distorted markets. His calculations apparently show that $1 invested in 1967 by a long-term investor would today be worth $2,650, whereas an activist trader would have obtained $75. So buy-and-hold would have dramatically outperformed bought-and-sold, although a cut-off point when the stock market is deeply in the doldrums could distort such a comparison.
Short-termism is not new, but it has never been as powerful as it is in these hectic days of globalisation. It is difficult to imagine the world ever returning to more laid-back times when the stock market was a more casual place but also nurtured some nasty habits. For example, in my early days, insider trading was not an offence; it was regarded by the great and the good as an acceptable practice. I recall one government minister talking about those "little games played in the City".
Although activist investing is attracting a growing following, I remain convinced of the merits of buy-and-hold, particularly for the small investor who regards the stock market as a sideline and probably does not have the time – or the facilities – to try to follow every twist and turn. But a flexible approach is essential. Sometimes, an early sale, if the picture changes, is advisable, but there is often a case for displaying a little patience.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Cyclist in Russia narrowly misses being hit by car and lorry
- 2 Y-40 Deep Joy: The world's deepest swimming pool
- 3 'F*ck it, I quit': KTVA reporter Charlo Greene quits live on air in spectacular fashion
- 4 Syria air strikes: President Obama undergoes Damascene conversion as Isis forces America to change tack
- 5 Pink Floyd new album: Band unveil cover art for first record in 20 years
Scotland could still declare independence – even without referendum, says Alex Salmond
Scottish referendum results: Cross-party consensus collapses amid Tory-Labour spat on the 'English question'
Hilary Mantel 'should be investigated by police' over Margaret Thatcher assassination story, says Lord Bell
Plebgate MP Andrew Mitchell called officer a 'little s**t', claim court documents 'exposing ex-Chief Whip's 'record of abusing police'
Archbishop of Canterbury admits doubts about existence of God
Labour Party conference: Ed Balls to set out plan to freeze child benefit to balance books
iJobs Money & Business
£65000 Per Annum Benefits + bonus: Clearwater People Solutions Ltd: If you are...
£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...
£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...
£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...
Day In a Page
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green