‘We always overestimate the change that will occur in the next 2 years and underestimate the change that will occur in the next 10.’
(Bill Gates)
In 1747 a surgeon named James Lind set out on the Royal Navy ship Salisbury to undertake the first ever clinical trial. On lengthy voyages it was not uncommon for half the crew to succumb to scurvy. Indeed between the 16th and 18th centuries about 2 million sailors perished, due to scurvy, in somewhat grisly circumstances.
Lind correctly suspected that a complete lack of citrus in a seaborne diet was the cause of scurvy, and so it was proven. In due haste this life changing and war winning breakthrough was adopted….in 1795! (3 quarters of an ounce of lemon juice was mixed in with the daily grog allowance to guarantee consumption).
Be it Bill Gates’ insight or James Lind’s discovery, the investment lesson is one of timing. Spanish lemon groves were probably the ´next big thing’ in the City of London coffee houses in the 1750s but you would have to wait half a century for demand to pick up.
It is simply not enough to identify a great idea. A portfolio needs a blend of ideas so that a handful are in the right place at the right time when radical change happens. (Needless to say these ideas are combined with steady compounding and more mature businesses).
In addition to timing one also has had to contend, in recent years, with recession, war, pandemic and inflation. These all have gone to creating a very erratic path to navigate.
With the benefit of hindsight it was soaring inflation last year that caused the most damage from a wealth perspective. There was justified panic that inflation could have sailed well beyond 10% and interest rates may have had to be raised to catastrophic levels to quell such an event.
The good news is that inflation is falling and could be back to near normal levels within 6 to 12 months. With interest rates then receding, this potentially unlocks the next multi-year growth period.
The next imponderable is recession risk; there is an old City joke that economists have predicted nine of the last five recessions. Recession in Europe and America is a possibility but likely to be mild in my opinion, if it happens at all, and then there’s the world’s second biggest economy, China, which is roaring back to life. In the event of recession, a strong bias toward companies with no or low debt, high barriers to entry and a flexible cost base will continue to be my preference.
On the whole, I think there are finally grounds to believe that the extraordinary turmoil of recent years is at long last receding.
Paul Tyndall, Investment Director
The value of securities and their income can fall as well as rise. Past performance should not be seen as an indication of future results. All views expressed are those of the author and should not be considered a recommendation or solicitation to buy or sell any products or securities.
