Investors can't go blaming China if they blow it all betting with bulls

US Outlook: The slowdown in China was bound to have some impact on markets inflated by local investors using credit cards to buy stocks

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The Independent Online

Well, what a week that was. The Dow Jones – a narrow and pointless index if there ever was one – tumbled to an 18-month low only to regain much of its losses towards the end of the week. Meanwhile the tech-heavy Nasdaq index was heading back towards positive territory for the year.

But if you had tuned into any financial TV broadcast a couple of days before, you would have been forgiven for thinking the apocalypse had arrived.

So in short we were doomed on  Tuesday, but everything was just hunky dory by Friday.

What will investors learn from it? If history is any indicator, virtually nothing. The warning signs had been the subject of discussion for weeks. The slowdown  in China was bound to have some impact on markets inflated by local investors  using credit cards to buy stocks. Meanwhile the Federal Reserve has been threatening to raise US interest rates since last December. Neither was news – then,  all of a sudden, panic selling and the end was nigh.

The American stock market, like almost all global markets, has been on an incredible bull run, which nobody should take as anything other than that. Anyone who has not been taking profits, hedging against a downturn and diversifying portfolios since January 2009, when the market turned, has no business being in the markets in the first place. There are countless ways to protect a portfolio against a correction or even a crash – and the only excuse for being in the red last week was if you had been unfortunate enough to have started investing about a month ago.

Never confuse brains with a bull market, the old saying goes. The only problem being that such sage advice is always forgotten in a bull market, which is exactly the time when investors need to remember it most.

There is more than hindsight at work here; all of the scientific evidence suggests that we know the answers to lots of things – including minimising stock market losses – but most of the time we choose to take no notice of science.

Businesses, politicians and ordinary people ignore scientific evidence all the time and then complain when things don’t work out as they expected them to.

What people refuse to accept is that all investors – from people with PhDs in finance commanding huge salaries at investment banks, all the way down to ordinary people playing with their little portfolios at home – are gambling. Perhaps it isn’t gambling in the same way that hanging around all day at the track trying to pick a winning horse is, but it is wagering all the same. Investing money in a company is a bet that it will perform as or better than expected – how exactly is that not a gamble?

Another thing we know about gambling is that over the long term the house always wins. Except the strange thing about the market, and what compels people to keep on playing the game, is that nobody really knows who the house is. It’s certainly not hedge funds, most of which have performed poorly against the market; – even Bill Ackman of Pershing Square, last year’s star hedge fund winner, is busy counting his losses this week.

The odds are that this volatility is far from over. There is no point in blaming China, the driver of much of the world’s economic growth for the past two decades, because if anyone tells you anything goes up in a straight line for ever then they are lying. What China is now experiencing was not just likely – it was guaranteed.

Meanwhile, American stocks, trading at their usual (and most would say deserved) premium to the rest of the world, remain grossly overvalued. The Dow has averaged a 24 per cent annual return since 2009, with the much broader S&P 500 not far behind. That’s about 10 times the rate of global economic growth over the same period. Something had to give.

Spend long enough at the craps table and you’re going to go on a losing run at some point. We accept that about a weekend in Las Vegas, yet we refuse to accept it about stock markets. It’s worth remembering that back in 2000, as the first dotcom bubble burst, the crash started in January but the real sell-off didn’t begin until September. If this is the last big panic of the year, I’ll eat my hat. Be ready for it.

Nice pay for Twitter chief, shame about the performance


This week Business Insider, the news website, published some research highlighting the best-paid American chief financial officers, whose compensation growth is now outpacing that of chief executives. Both are excessive by any rational standard, but the list of the highest-earning CFOs still made interesting reading.

A smattering of well-known companies featured on the list – it should surprise nobody that CFOs at companies such as General Electric, Apple and Goldman Sachs make millions. What was more interesting was some of the other names listed, at companies only a hardcore US corporation watcher might have heard of: Antero Midstream Partners and Crown Baus Capital, anyone?

Perhaps the biggest surprise was the name at the top of the list, with a whopping $72.7m (£47.2m) in total compensation: Anthony Noto, the CFO at Twitter.

OK, so most of Mr Noto’s compensation is in stock and stock options rather than cash. But even so, it is hard to understand what he brings to Twitter that makes him worth that much money. His background – college football star; tech banking at Goldman Sachs, where he led Twitter’s IPO; and CFO of the National Football League, probably the world’s most profitable non-profit organisation – says little about his ability to turn a floundering tech platform into the profitable business it aims to become. It says more about his ability to sell Twitter, not transform it, and even that idea is falling flat.

He has been at Twitter since last August, and since then it lurched from one disappointment to another and lost half its market capitalisation. All of which makes him possibly the worst-value trade in sports history.