Ian Dury and Steven Morrisey – the great investment philosophers
“Heaven knows I’m miserable now”
I always felt that Morrissey (the singer from the Smiths, who wrote the words to this song) was much maligned. I spent a lot of time boring other teenagers in the early 1980s about how this song wasn’t a celebration of unhappiness… actually.
Recently, I have taken to singing Morrissey’s classic line after I turn off the television news or put down a newspaper. If you listen to a politician or read the news, there is a good chance you’ll see a prophesy of economic, or some other form of, doom.
However, every cloud has a silver lining. The recent rises in interest rates have been good if you have savings, and you are happy to use the internet to get a higher return (it’s not hard to find deposit accounts paying interest of 4% at the time of writing).
Data published by JP Morgan shows that the more pessimistic we feel as consumers, the more optimistic we should be feeling as investors. Over the last 50 years, many of the best times to invest have been when consumer sentiment is at its lowest. There has been a clear, inverse correlation between measures of consumer sentiment and investment returns, with periods of good stockmarket returns following troughs in consumer sentiment.
Of course, consumer sentiment may still worsen, and the past might not be a guide to the future. But the general feeling of impending doom may be an indication that a good time for investors is on its way.
Reasons to be Cheerful
Ian Dury’s “Reasons to Cheerful, part 3” didn’t mention the connection between consumer sentiment and stockmarket returns. I’m not sure it would have scanned! I don’t think I agree with all of his reasons to be cheerful, although “Cheddar Cheese and Pickle” and “a little drop of claret” usually work for me!
It is important to remember that good news, unlike bad news, isn’t attention seeking or fast moving. There has been plenty of coverage in the news about rising interest rates and the impact on those with mortgages. But the less dramatic, good news is that those with mortgages are now likely to be less immediately affected by rises in interest rates. The chart below shows the proportion of new homeowner mortgages taken out on a fixed rate. The proportion choosing a fixed rate has quietly moved from under 50% in 2010 to well over 90% in 2021. If nothing else, most new homeowners will have time to prepare for increases in their mortgage payments.
(Graph provided by Hearthstone Investments, September Housing market outlook)
The fact that bad news grabs the headlines is particularly true in the world of investments.
The S&P 500 Index of US shares has been running since the end of 1925. During that time, there have been 96 complete calendar years. In 71 of those years, the index has gone up in value. Those years weren’t newsworthy though – the 25 “down” years were the ones to get the attention, of course.
It’s important to remember what resulted in US shares rising in value in those 71 years –companies went about their business, making profits day by day, turning that profit into dividend payouts, and feeding the profit back into their long-term growth. Despite the politicians, and the seemingly constant bad news, ingenious people will find a way to make a profit. That means that companies will pay rent on the buildings and land they occupy, they will pay interest on the money they borrow, and they will pay dividends to their shareholders.
From an investment perspective, it’s usually important to ignore the short-term media noise and to remember that patience and composure are two of the most important characteristics of successful investors.
My updated, financial version of Ian Dury’s masterpiece would include at least one line about fixed rate mortgages and another about the S&P 500 Index. I’m not expecting to win a Grammy, but I do think my Reasons to be Cheerful are worth singing about.
Philip Wise | philip@sussexretirement.co.uk
Managing Director and Chartered Financial Planner
