There’s nothing wrong with Schizophrenic Investment

…so long as you’re doing it for a reason :)

Monevator berates the Chicken Littles among us for

Yet people far prefer to read doom and gloom disaster stories from people who sound wise by not sounding happy.

and he’s right  – he’s been quietly making money from having the brass nuts to go in to the market in March 2009 when Mr Market was feeling really pissed off and buy by the bucketload. And he’s been consistenly upbeat. What tickled me, however, is that he knows the dirty little secret of bears

By all means keeping reading the bearish blogs, and hear both sides of the argument. But remember many such writers will never change their tune. They’ll either quietly start talking about stocks they bought six months ago, despite their publicly gloomy convictions.

Ah, it’s a fair cop. I’m going to be particularly ornery here. I’m not going to change my tune, and yet I’m happy to ‘fess up that I have been buying since April 2009 (I didn’t have Monevator’s chutzpah) – Legal & General UK/World 50:50 trackers. I’m also happy to tip my hat that it was his March article that crystallised my gut feel to try throwing some money down what looked like being a pretty large drain, in drips so I didn’t get killed all in one go.

These trackers are dreadfully boring (though their perfomance isn’t) so for some excitement I’ve been adding to that, diversifying into Brazilians (ETFs that is) while the £ was still worth something and some UK investment trusts after reading this article, digesting the information and considering my specific requirement for UK income in future. My bearish side comes out in some gold, though after some reflection that is in an inappropriate format. ETFs are real but exchange traded commodities are not the same thing at all. They are achieved with smoke and mirrors.

Oh an I made a right pillock of myself in losing £400 on BP by lacking consistency in what I did. That’s not so bad and I relearned an old lesson, the education was cheap at the price 😉

And yet I’m still a bear.

Why I’m A Bear

Basically I think the Western world is shot. We carry too many passengers, we’ve got lazy and fat during the good years (some of us literally!). We don’t make anything any more. Look at the telly and popular magazines and it’s all bread and circuses, the sickly stench of decadence reeks, plastic celebrities and paper-thin characters, though some of them are mighty easy on the eye.

Our schools don’t differentiate between the clever and the stupid, and too many of us live on the never-never, without the personal accountability to pay for what we want to use or do without it.

Trouble is, as the bread and circuses quote shows, people have felt like this in every generation. They probably didn’t grouch about what was on the telly in AD100 but I’m sure the crabby old gits grouched about the celebrities. So that in itself is no reason to be a bear as far as the stock market is concerned.

The reason I’m a bear is because our economy is predicated upon the myth of continual growth. Our money system needs growth, else it quietly dies on its feet. We even define a recession as two quarters of negative growth. We just don’t do non-growth.

The reason we get away with that is because we are using up a free gift from millennia past. That is reaching its peak production, and unluckily for the West in particular, we are getting old and stale and this happens at a time when there are a lot of new middle-class consumers in Asia who haven’t had the lifestyle we have become accustomed to all wanting a slice. You can’t blame them, but the last time I tried dividing a cake up among twice as many people as orginally intended everyobody ended up short.

The increasing scale of capitalism and the ease with which goods and services can be moved around the world means that wages will be levelled down. If it weren’t for resource shortages it could be quite possible that the total amount of capital in the world would increase even as Western living standards decrease. That would, paradoxically, make me into a bull – it would be a case for intelligent asset reallocation. Factor resource shortages of oil and later some raw materials into the equation and I become a bear.

In particular I don’t trust Western currencies and the £ (and the $ for that matter) to hold their value to the long term at all. I’ve addressed some of this by buying stuff – owning my house outright, and after that buying capital assets which give me some independence from some common costs, and business opportunities. The house is in some ways a daft move, I fully expect house prices to fall to the standard 3.5x average salary, but you always need somewhere to live, and owning it outright gives a certain peace of mind.

so why was I buying shares at nearly the same time Monevator?

Because I’m one of those duplicitous bears, you can’t trust them further than you could throw them? Not exactly – I view this as simply another example of diversification. Though I believe the macro-hazards will get us, I don’t know when they will. Unlike the finacial pundits and guys on the TV and newspapers who make money from having a strong opinion, I can afford to know that I don’t know.

It therefore looks entirely reasonable to me to play both sides of the field, and put half my assets to a tin-hat portfolio of real stuff, to hedge currency death, and the other half towards the sort of world Monevator describes. Most things revert to the mean, and in that case my shares will continue to rise. Then eventually I’ll go on those foreign holidays I passed up while unconventionally actually paying off my mortgage. Presumably that will be in electric airliners powered by thorium reactors.

Hopefully by then everybody in the world will have a living standard such that they produce fewer than two children on average, we will have worked out an economic system that doesn’t demand continual growth, and there will still be some wild places, with birds in the air and fish in the sea. It could happen. I don’t think it will, but if there’s any chance then I’m up for it, yes please, bring it on.

So I think Monevator was hard on the bears. There’s nothing wrong with a bear knowing the limits of its wisdom and the power of his crystal ball. It’s far more interesting to write about what’s wrong in the economy, and the bearish argument always sounds smarter. On the other hand he’s quite right to grouch about the lack of overall balance in the PF blogosphere.

I am bearish of view, and this generally reflects my opinions. I’m not so sure this is a typical PF blog however. Heaven help anybody who is under the impression this is investment or economics advice! My situation is quite unusual, in owning my house and in not having children, so the world will look a very different place to me than to most Brits :)

So I’m happy to ride the wave with Monevator. I do it to have exposure to an alternative reality from what I expect, because the data that forms my expectations is noisy and sparse, and distorted through the lens of my own hopes and hangups. A kind of diversification in expected economic futures, maybe. Diversification is a good thing in investing – it means you only get half  killed rather than wiped out if you’re wrong 😉

Nice retort Ermine. Perhaps if we keep having these debates between us, we’ll eventually collect and share a few more British readers! 😉

Your policy sounds balanced enough to me. Be careful, the true Internet-bears will run you out of town if they hear.

An interesting piece, and I don’t disagree. I’m definitely a ‘macro-bear’ for all the reasons you give, most notably peak oil. But although I see the end is coming, I don’t necessarily see it as ‘nigh’. I did when I first twigged to PO, so I stocked up on gold, tin hats and baked beans.

Since then I’ve got a bit bored of waiting for the doom to arrive (or desensitized to what doom has arrived?), and likewise have decided to spread my investments a bit. Still, my doom preps have been no-regrets investments. There’s always baked beans if it’s raining too hard to go shopping one day… and the gold price has done very much what I expected. I did cash some out recently, proving to myself it’s a more liquid ’emergency fund’ than my ‘cash’ ISA (and with much better returns).

However, this year, I’ve been buying stocks with a shiny new S&S ISA, as so long as BAU is ticking over largely, there are returns to be made there. I got to that point via Jacob at ERE and his ideas about replacing job income with passive income, and Monevator’s exposition of the high-yield portfolio approach geared towards us UK investers.

And Ermine, I’d like to know what’s ‘unusual’ about owning your own home and having no kids 😉 Seems quite natural to me 😎

Plenty to agree with here in the sense that it is always best to look at both sides of the bull/bear divide. At the moment, I am on the bullish side, but I have also taken steps to cope with a more bearish outlook.

I have a mortgage, but I could pay it off. I choose not to because it only costs me 2.5% and I can do better elsewhere with the money.

Energy resources and exploitation are the key to growth, so I always intend to have a diversified interest in these, although with inventory cycles and speculation this is always going to be a rocky ride.

Growth isn’t just a myth, it’s also a fact. Adam Smith was one of the first people who noticed it because of the C18th upsurge, but it had already been happening for millennia. It won’t necessarily carry on everywhere (Japan watching will be useful here), but I suspect it will — somewhere.

Who cares if you’re right or wrong… that was one fine bit rant writing! If only more bloggers could express themselves so well.

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I guess when you wrote this the markets were only just recovering so there were plenty of bears about due to us still being in a recession? Again your reasoning still stands today on all of the above (IMO anyway!) whereas some of the bears are surely fickle investors who are now bullish, or may have changed and changed back because of rise of the market.

I guess I am also a Schizo investor. I’m going in with the Index funds, and at a time when markets are much higher than 2009 (unfortunately!).

But I am also looking at other investments. We have solar panels already, quite an energy efficient house, and are looking at other ways of reducing our energy usage. Also going to plant a garden this spring, and so on. Also will look at over paying some of the mortgage this year for sure! These are all good ideas whether you are bullish or bearish anyway I guess so it’s a bit of a no brainer.

@theFIREstarter curiously I’m probably still bearish but for different reasons now. Reversion to the mean would point that way. And experience shows me that when I look back on a few years of good performance – the lean years are not far away. But those lean years are the time to commit new money to the markets…

The wider issues raised here do seem to be playing out, however. Wages are being levelled down, hence the endless carping about a cost of living crisis. We just don’t add as much increasing value due to the efforts of labour as others, resulting in falling productivity and falling wages in real terms, although this is masked by an increasing skew into lovely jobs and lousy jobs.

Reducing energy usage and growing more food are always good. I halved my home energy usage compared to my former working self and notably reduced driving. A lot of that gets easier when you own your own time.

Paying off more of your mortgage at your stage of life is a tough call. You have more years to average out the noise in stock market returns. The Accumulator (on Monevator) looked at that a year and a half ago and figured the opportunity cost was too high. In hindsight I screwed up when I paid off my mortgage. I had driven it down to £1000 for a couple of years, what I should have done was keep it and perhaps invested more. But I was tired and fearful of the future. Not all of personal finance is about logic – and if you fight your nature deeply then you’ll bail out at inopportune moments.

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