6 May 2010

WITH SO MUCH BULL AROUND, WHO TO TURN TO FOR INVESTMENT ADVICE?

The above was the title of my recent article for The Nation that highlighted that ONE OF the biggest problems that seems to infuriate many investors is the inability of brokers and analysts to accurately predict the markets. The use of regressive analysis, Fibonacci sequences and historical data can help paint a clear picture of why what just happened has happened, but it consistently fails to offer credible and accurate insight into the risks and returns of future investments.

The ability to accurately predict future events is one of the defining characteristics of science. The fact that market analysts fail to do this suggests that either their model simply doesn’t work, or that despite all of the convoluted data the profession is really more of an art and that at the end of the day too many brokers and advisors still act on gut instinct – a nice luxury when you’re playing with someone else’s hard earned cash.
As a result too much time and effort seems to be spent on the reassessment in hindsight of major events – the collapse of the sub-prime market, the fall of Lehman Brothers, etc – to explain how they all really saw it coming but for some inexplicable reason forgot to act to prevent losses.

This is little more than a financial parlour trick, a revisionist sleight of hand that hopes to keep investors parting with their cash, but I’d always be less interested in knowing why investments lost out in the past than how that relates to the present and the future and what should be done next in terms of sound advice. A decade ago research by McKinsey & Co found that analysts

 “were typically overoptimistic, slow to revise their forecasts to reflect new economic conditions, and prone to making increasingly inaccurate forecasts when economic growth declined”.

The catastrophic events of the recent financial crisis have done little, if anything, to change this outlook that the sector is overly bullish, as a report published earlier this month by McKinsey Quarterly reveals.

“Alas, a recently completed update of our work only reinforces this view – despite a series of rules and regulations, dating to the last decade, that were intended to improve the quality of the analysts’ long-term earnings forecasts, restore investor confidence in them, and prevent conflicts of interest.”
So, I asked, just whose advice should you listen too when making an investment? It should be someone with a proven track record of making solid investment calls, especially those that have bucked bullish consensus and as a result either generated profits or protected capital. We know that such people are thin on the ground but we also know that they do exist. Just over 10 years ago we first encountered the now three times S&P award winning fund manager Scott Campbell, CEO of MBMG's portfolio advisors, Guernsey-based MitonOptimal, who, along with his long-term business affiliate Martin Gray has repeatedly hit the nail on the head with predictions of major market events.

Scott and Martin's their expert knowledge of how to evaluate the region’s markets and currencies against the bigger picture of global portfolio allocation has been the cornerstone to MBMG's success over the last decade. Investors have been shocked on numerous occasions during the pair’s frequent trips to Bangkok by their contrarian calls – which have even more shockingly turned out to be spot on.

The price of oil is just one example. With oil in the doldrums, in January 2007, Scott Campbell told the Bangkok Post “oil will hit more than $80 a barrel”. By mid 2008 when oil had reached $130 per barrel and everyone was rushing into black gold enthused by Goldman Sachs’ view that $200 was in sight, Scott was now heading the other way talking of “air pockets” – a phase when prices drop. Within weeks the price had started to drop, ultimately falling below $40 per barrel. In February last year Scott was back here again (while in London Martin was receiving the accolade from the Sunday Telegraph of second place in their listing of the top 12 fund managers of the decade) and he told The Nation, that he expected the oil price to bounce back up again and that although the situation seemed as difficult as it was in the 1930s, and that the name of the game had changed to focus on return of capital – not return on capital – he remained upbeat on Asia, correctly predicting, months ahead of most observers, that the continent’s economies would lead the world recovery.

In terms of the money markets, Scott has a similarly pre-eminent record. In 2007 he called a weakening of the US dollar, in June 2008 he called a dollar bounce when consensus was that the greenback had become a banana currency, and in February last year he again correctly called a weakening of the dollar, before seeing a turning tide again late last year. He has also pioneered the only global investment portfolio hedged into baht and Singapore dollars as well as the major currencies.

While no-one has the ability to be 100 per cent right all the time, Scott, Martin ad their team have translated their superior analysis into returns that have consistently outperformed the market. Analysis shows that the times when MitonOptimal has made thinner returns than the consensus are typically the prelude to a crash. Rather than profiting from the death rattle of the bull market only to lose all the gains in the blink of an eye, Scott has tended to focus on protecting client assets by moving the smart money to safer havens. Last week Scott gave briefings at breakfast, lunch and evening events and again came out with some very insightful observations. We'll be featuring these in coming MBMG Updates.