The Chinese have got it wrong. Two thousand and sixteen is going to be the year of the dog……The Saltydog!
This New Year the press is full of gloom and doom with warnings of an approaching financial apocalypse. The pundits at the Royal Bank of Scotland seem to be advising anybody that will listen, that they should head for the hills and take up a life style akin to Barney Rubble in the Flintstones. I guess that some might consider this to be understandable with the FTSE100 moving from 7000 in April 2015, back down to 5800 in January 2016. A fall of 17% and the possibility of a further fall, bearing in mind the present absence of any good news. A common forecast would seem to be that the FTSE100 might bottom out later in the year closer to 4000 than to 5000. That would be a fall of around 40%. As the chart below shows, this would not be unprecedented when you consider how the FTSE100 has performed over the last 20 years.
Anybody using the “buy and hold” (do or die) approach to their pensions and investments could see them virtually halve in value under these conditions. Now that will be a disaster. There are many reasons being put forward for the present financial catastrophe. To name four: the collapse of growth in China; the fall in oil and commodity prices; an uncontrollable growth in world debt; future rises in interest rates. Who is really to know which one of these is going to generate a further collapse?
So why have I said that this year is going to be the year of the Saltydog? Well between April 2015 and January 2016 the Tugboat portfolio has gone up by 7% not down by 17%, which as you know is because it was actively managed using a momentum technique with up-to date performance numbers. At this moment 70% of our investment portfolio is sheltering in the Slow Property sector making small monthly gains with the 30% balance in cash and spread amongst the more risky sectors. If the disaster that I described above should happen then I would expect the Tugboat algorithm to advise a departure from the risky sectors back into cash, leaving the Slow Property to continue to make gradual gains. Of course if they were also to stop performing then we might end up for a period holding mostly cash? This rather nice synopsis should leave us in a perfect position to take advantage of the pick-up in the markets whenever that occurs. We would be cash rich and poised on the starter blocks!
The question you might now be asking is would we have the time to complete this favourable manoeuvre or would the fall be too quick for us to complete a controlled withdrawal. Looking back at the 2008 financial collapse of 48% might surprise you. What is always referred to as falling off a precipice, was in fact not the situation. It actually took place in four distinct steps and the losses were entirely containable using a Saltydog approach. Apart from that we are already some way down the road heading for port and safety.
In this climate it is very important to think carefully about the message that the press and the financial institutions are putting out because they might have a hidden agenda. Therefore perhaps it is not always best to take their messages at face value. For instance, RBS has good reasons after their appalling performance over the last few years to now preach caution. If there is to be a further market collapse, then they will appear wise, and if there is not, then everybody will forget what they said anyway. So think carefully and question what you read and hear, then before acting, see whether it gets confirmed by the numbers.
This situation reminds me of a story about an acquaintance of mine. He was diagnosed with having prostate cancer. He told me that his consultant Mr Singh had said that he should have it removed with an operation, but he ought to be aware that the operation might leave him impudent. My friend found that strange, but did not give it to much thought, and he said to go ahead. The operation was successful and the cancer has gone, but unfortunately he has not been the same man since.