July 13, 2015
London, England
[Editor’s note: This letter comes from Tim Price, London-based wealth manager and frequent Sovereign Man contributor.]
“Nobody knows anything.”
That was famed Hollywood producer William Goldman’s sardonic assessment of the movie business in his classic memoir ‘Adventures in the screen trade’.
In finance, things are subtly different. “Nobody learns anything,” appears to be the mantra.
If one generation happens to stumble upon knowledge – probably involuntarily, and learnt at great cost – then the next generation (or nation) scampers blithely away from it and on towards some fresh disaster.
Mario Draghi at the ECB gave us the phrase “whatever it takes”. Now the policy chiefs of China are running with it.
Government buying stock to support the market? Check.
Government halting trading in half the stocks on the market? Check.
Government banning large shareholders from selling for six months? Check.
Government suspending any further IPOs? Check.
Government slashing interest rates? Check.
Government ordering companies to buy their own shares? Check.
This makes for the most absurd global financial situation we can remember.
There may have been wilder outbreaks of mass fatuous behaviour – as Adam Smith could easily have said, there’s a great deal of absurdity in a market.
But we have long held that if you don’t understand the rules of the game, it’s best not to play the game.
Doing anything in credit markets today involves making a macro market call that is fundamentally impossible.
All debt markets have become speculative arenas courtesy of central bank activity.
Participating in stock markets today absolutely requires a margin of safety (and a strong stomach).
But value, we believe, does exist out there – provided you have a manager with the geographical flexibility and mandate to look for it.
If your fund manager simply tells you that stock markets are too expensive, he’s looking in the wrong places; time to find a new manager.
Tim Price is a principal at London-based Price Value Partners, a new global value equity fund, which invests precisely on the basis that Tim describes above.
