Insight and Intelligence on the London & International Insurance Markets 15 Dec 2017
The story of Old Turkey
- 10 October 2017
Imagine that on your way home the urge suddenly takes you to gamble. You walk straight into a betting shop and place the biggest bet you can afford on a horse race.
You lose. Then you got to the bank and get some more cash, and do the same on the next two races.
You lose again.
You have now exceeded the daily maximum withdrawal limit and have to see the manager personally and give lots of forms of ID to clear the final bit of cash from your current account and short-term cash savings deposits.
You put it all on another nag in the last race and you lose a final time.
You realise you have racked up losses that are exactly what you have earned in the preceding 12 months. It's been quite an evening.
As you walk home you wonder what you are going to say to your spouse.
Once inside, you conclude that honesty is the best policy and explain everything.
Your partner listens attentively, shrugs and says: "That's okay darling, I still love you. We'll be okay - we have some savings and investments. I'm sure you'll be getting a pay rise next year."
Does this seem like a realistic scenario to you?
Yet this is exactly what has happened to us as a market. This remarkable $95bn-loss quarter has blown away a full year's earnings and our investors have professed their undying love.
They have shrugged and offered their shoulders for us to cry on and opened their wallets to pay the upcoming rent and the bills.
No wonder there is a soft market: Investors are currently happy making zero returns.
This is because we are in the grips of a (probably late-stage, but who knows?) bull market in equities - probably the longest and strongest on record.
Just dial up a long-term chart of the S&P 500 and see it laid out in all its terrifying magnificence.
It may look a long way down from the dizzy heights the market has attained, but only a fool fights a long-term trend as virulent as this.
It's like the story of old Mr Partridge in Edwin Lefèvre's classic investment tome Reminiscences of a Stock Operator.
Senior in years and a seasoned investor, Mr Partridge is affectionately nicknamed "Old Turkey" by other customers.
One day a young investor tells him to sell a position that has generated a strong profit because it is due a price correction and he should be able to buy it back cheaper when the dip comes.
The Old Turkey looks at the young man quizzically and explains that he'll be sitting tight.
"My dear boy, if I sold that stock now I'd lose my position; and then where would I be?" he explains to the uncomprehending youngster.
"...To lose your position is something no one can afford, not even John D Rockefeller," he later adds.
Old Turkey's experience made him understand that that the real money was not made by trying to time market fluctuations but by patiently playing big themes during its major secular moves.
But the Old Turkey also knew that the trend is your friend - until it starts to bend.
For now we can stumble home with nothing to show for our day's labour and get a sympathetic welcome.
Currently, our investors don't want to lose their positions and our spouses still love us.
It won't always be this way.
One day we will come home to an empty house and a Dear John letter, explaining that the new partner down the road is far more dependable and attractive.
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