INVESTING with Mike Taylor, Piefunds
Optimism
Well, another year has kicked off, year five for Pie Funds. We start the year with the same issues we finished with, European sovereign debt, China slowing etc etc. You’d have thought we could have just gone away, had a break, come back and somebody would have just pushed the reset button. Alas no. However, there are a number of economic indicators such as German and US manufacturing data which continue to prove robust. Therefore, those who are writing-off 2012 as potentially a year to forget (current consenus) might find themselves caught short.
I read a fantastic book over the break called the Rational Optimist, which has set my tone for the year. The basic premise of the book is that we are all a bunch of pessimists, but in fact, life gets better and easier each year and that every crisis, whatever that may be, always gets solved by our species incredible “collective” brain – the sharing of ideas, techonology and resources. It seems these days you are more likely to gain exposure and notoriety for being pessimistic. You are considered a sage by the media if you forecast the next crisis but dismissed as a fool if you forecast a positive outlook. Have a browse at your local bookstore, there are plenty of titles on econmic crisis, disaster, global warming, peak oil, world famine, to name just a few. There are no books about what we have to look forward to, nothing about how life is likely to be better in 25 years than it is today. Sure there are times to be pessimistic about the immediate future, such as late 2007, and indeed it is a focus on certain issues that lead to a resolution, but overall, we should be optimistic most of the time. Consider this, in 1894, the Times of London estimated that by 1950 every street in the city would be buried nine feet deep in horse manure. Every major city had the same problem and there seemed no solution, given the dependence on the horse in the 19th century, yet the problem was solved in a very unconventional way.
As investors, we must always question everything, and when people are overly pessimistic, force ourselves to take the opposite view. I said to newsletter readers in late 2008 that cash might be King right now, but there will come a time when cash is not King and you want exposure to other undervalued assets. I think we are once again in one of those times.
10 reasons to be optimistic about 2012 and beyond:
1. The peak of ASX and NZX was Oct 2007, so we are over 4.5 years from the top. A new bull market will emerge in the next few years which will go on to re-take the old highs from 2007.
2. The MSCI World equity index remains at levels first seen at the end of 1998. The premium to purchase risky assets has greatly reduced over this time.
3. Technology continues to drive improvement in energy efficiency meaning that “peak oil” will never become a problem.
4. Green Energy is likely to be the next wave of global growth.
5. This current economic crisis, like all before – will be solved. Regardless of the fact that it appears the Europeans couldn’t organise a piss-up in a brewery, somehow, there will be a resolution.
6. The earthquakes in Christchurch will stop eventually and the rebuild will commence.
7. Low interest rates mean its a good time to refinance your mortgage.
8. Global Warming is probably just “air con”, so you can continue to live guilt free, because a British supermarket will use more carbon refigerating NZ lamb than will be used in transporting that lamb to the UK.
9. New Zealand is still one of the best places in the world to live.
10. Pie Funds has two great equity funds and we have a clear strategy to
deliver outperformance.
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