Well, that was an interesting end to 2023!
It rained here in the Southeast of England; boy did it rain. And at times the wind and the rain got together to make going outside really quite unpleasant. Christmas came and went in the usual blur of smiles and laughter, travel, pigs in blankets, bags of wrapping paper and those bits of Sellotape that get stuck on your sock.
Whilst we were planning for, and then enjoying, the festive period, December saw investment markets take off like a rocket. They were boosted by lower inflation figures coming out of the US, Europe and the UK, increasing the chances of interest rates dropping faster than anticipated, alongside an apparent pause in escalation to the conflict in the Middle East.
Unfortunately, January tells a different story as fears of the Middle East conflict spreading further in the region unwind some of the gains made at the end of last year. A little disappointing, yes, but also a reminder that markets go up and they go down and there’s nothing any of us can do to influence them.
I try to read a wide range of commentaries because it’s useful to hear different points of view rather than remaining in an echo chamber. A client drew my attention to a letter recently written by Terry Smith, the founder of a popular (and very successful) fund manager, Fundsmith. The above cartoon (by the Economist’s cartoonist Kevin Kallaugher) had already made the financial press before I saw it in the letter and it made me smile.
In his letter, Terry touches on something we mentioned a few times in 2023. One of the reasons our preferred Vanguard fund ‘did pretty well’ all things considered was that it owned all the so-called Magnificent Seven – big US tech firms including Apple, Amazon, Microsoft and Tesla.
Sarasin (our preferred responsible asset manager) and Fundsmith both own some of the companies, but not all of them: Terry’s letter says “We do not own all the Magnificent Seven and would probably not be willing to take the risk of doing so, even if all of them fitted our investment criteria.” I’m not comparing Fundsmith’s performance with Sarasin, who disappointed last year, but there is consistency in the messaging not just about those seven stocks, but also how Fundsmith approach investing. According to the letter, they:
- Buy good companies
- Don’t overpay
- Do nothing
Applying that last bullet point to financial advice is sometimes really hard to do. When markets are down, or the fund/portfolio selected has a poor run, it’s very easy to look for the greener grass elsewhere. Being patient investors is sometimes difficult, but often rewarding over the longer term.
We try to be patient. The reasoning behind this approach was captured really well in something Alan Smith of Capital Asset Management (who happens to be a friend of one of the team here at Gibson Lamb) recently wrote: “I’m not working to maximise your short-term return, I’m working to minimise your short term regret.” It’s a sentiment I really like…
Let’s see what 2024 will bring!
All the best everyone!