28 Feb 2011 | Opinion

Benefits of Age 

Wisdom and confidence comes with age, says Edward Hocknell

One of the nice things that happens, as one gets older, is that one becomes more confident in the feeling that if something sounds a bit fishy, it probably is. As time passes, it becomes easier to swim against the current of popular opinion. In my case, I have never seen the point in foreign holidays - the indignity and discomfort at airports seem unnecessary. Holidaymakers will no doubt have to be photographed naked by security cameras soon. I feel increasingly justified in staying at home.

The financial world too offers many opportunities for this sort of self-belief. In my view, almost all the conventional wisdom is questionable. Reading advertisements in the newspaper for new financial products is an entertaining way to pass the time of day but one should always ask: how is this trying to trick me? The popular guaranteed return products currently work well for the sponsor, usually because all the dividends are kept - a fact that is mysteriously downplayed in the marketing material.

It may help to have a little more distance by not having a financial or economics background. Students will believe anything when they are 18; they are a bit more sceptical as graduates. After years of studying Latin and Greek, I remember being astonished to be informed that markets are efficient, risk is the same as volatility, and that savings and investment are the same thing: all this seemed so implausible that I was on my guard from then on. So let us put on our sceptical spectacles and ask: what is the next ‘Big Error’ going to be?

One of the peculiar features of the current environment is the absolute determination to ignore good news. Lord Young, who clearly enjoys the benefits of age, was right: many people have never had it so good, but he was sacked for saying so. The media talks of ‘these recessionary times’, and the problems of Ireland and Greece are expected to undermine the global economy by a weird form of ‘contagion’. The rising price of Chinese vegetables foretells our doom, apparently. Can all this possibly be right?

It would be tedious to go through all the countervailing evidence that things are just not that bad, and better than that in a lot of places. No one is listening - but why not? It is partly political. An atmosphere of impending disaster has to be maintained in order to rally support for the cuts to come. It is also partly fear. Everyone is afraid of the bond markets, and bonds love angst and austerity. The corporate sector got a huge shock in 2008 and wants to keep piling up even higher mountains of cash, so companies have to sound cautious so that they can resist pressure to do something with it. Finally, there is inflation. It is pretty obvious that inflating them away is reducing our debts. This stratagem absolutely requires a smoke screen of gloom about growth or it will not work.

Conventional wisdom is right sometimes, and it is always risky to think that you are the only one marching in step. But the evidence on my side of the argument looks pretty strong: most people are too gloomy and so shares are too cheap. In any case, marching to a different beat is the only way to make much progress in the strange world of investment.

Please remember that ongoing stock market conditions and currency exchange rates will affect the value of investments and any income from them. Investors may not get back the amount originally invested.

Author: Edward Hocknell
Edward graduated BA in Classics & Philosophy from Oxford University. He joined Baillie Gifford in 1984 and became a Partner in 1998. Edward is a Director in the Institutional Clients Department with responsibility for North American clients. He is a member of the Investment Policy Committee.