The crash I didn't see

My biggest mistake; Investment guru Bob Beckman
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The Independent Online
"My biggest mistake was in May 1972, when I predicted the Financial Times 30-share index, which was the main stock market measure at the time, would go through 700.

The index had just moved above the 520 level for the first time in about eight years, and I thought that move was pointing to much higher prices to come. What happened was that the index rose another 25 points, and then turned around and plunged. Between May 1972 and January 1976, it lost nearly 70 per cent of its value.

That particular mistake didn't really cost me that much money in terms of my own personal investments, but it has been used as a whip for the media to beat me for the past 24 years.

The media started to pay attention to my work in the late 1960s, and one of my forecasts was that the FT30 would reach the level of 520, not go much higher and then fall to 300 before reaching a level of 520 again. In other words, I was saying a bear market was imminent - and it was. It happened. But I was in disagreement with everyone else. You don't win any popularity contests for being right on your own, you win popularity contests if you're right when everybody else is right.

When that bear market hit bottom at 305 in February 1970, I became very bullish and said: `Now is the time to buy shares, when everybody else is bearish.' And I was right again. The index got up to the 520s in May 1972, and then, because I thought they'd climb further, I was finally, ruefully wrong.

Journalists said: `Now is the time to develop a contrary Beckman indicator. Beckman was bullish at the very, very top, so whenever Beckman is bullish, turn bearish, and whenever Beckman is bearish, turn bullish.' That went on for years, and it all started with that one bad forecast.

When that 1972-1975 recession hit, I didn't expect it. I began to question myself on why. How could I possibly miss one of the worst recessions we'd seen since the Great Depression?

So I started to examine a lot of the economic tools which I had been using and the financial tools which had given me that target of 700 for the 30-share index. I started to question it and began to look at some of the long-term cyclical economists that I didn't pay too much attention to while I was at university. I should have been paying attention, because they were the type of people who would have been able to forecast the 1972-75 recession.

As a result of that, I changed my way of economic thinking. I abandoned all the micro-economic tools I had been using, and started looking at the economy on a much more macro basis, and started to look at long-term cyclical trends. It was a real watershed in my approach to the investment and the economy. It taught me that I didn't know everything and that I should look at things in a much broader scope, which I have been doing ever since. It's made me much more cautious and much more conservative. And I haven't made a forecasting error of anything like that magnitude since.

I forecast the 1987 Crash 10 days before it happened on LBC and in my publication, Investors' Bulletin. So many people claim to have predicted the 1987 Crash, it's hard to believe how it could ever have happened. But I did forecast it, and that's well-documented. On the surface, everything in the UK and US equity markets looked fairly calm. But, beneath the surface, there was a tremendous amount of turbulence. Technically, it just looked like it was crumbling, and big divergences were building up between the leading indices and the broad market.

I had sold out before then, because I'm a value investor, and with my own personal money, I just didn't like the values that equities were offering. I didn't sell out because I saw a Crash was coming. I sold out because I liked bond markets better.

What I try to explain to people is that markets are non-linear dynamic systems. That means today's influence may not be the same as tomorrow's influence. Today we may have share prices going up because interest rates fall. Next week we may have them going up because interest rates do the opposite. There is no such thing as a fixed cause and effect. The only hitching post an investor has is value. When he sees markets offering good value, good yields, good dividend covers, reasonable price/earnings ratios, that's the time to be there. When he sees markets that offer poor relative values, the investor should pull in his horns."

Bob Beckman's latest book is "Housequake" (Rushmere Winne, pounds 14.95). He was talking to Paul Slade.

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